Letter from the US: Fiddling figures to cut wages

January 22, 1997
Issue 

Fiddling figures to cut wages

By Barry Sheppard

After last November's elections, the ongoing bipartisan drive to cut the social wage will centre on whittling away at Medicare and Social Security. Exactly how to go about doing this is somewhat perplexing for the capitalist politicians, however, because these programs, however modest, enjoy widespread support in the working class.

The main approach of both parties has been to claim that Social Security and Medicare have to be cut because otherwise they will soon go "bankrupt". This assertion, while false at its core, puts the blame on "objective" factors. It's not the fault of the Democrats and Republicans: they are being forced to make these cuts by the mathematics of the situation.

Another tack has been the trial balloon of a report by an "independent" committee set up by Congress to investigate how the government calculates the rate of inflation for consumers, the Consumer Price Index (CPI). The report claims that the current CPI overstates inflation by 1.1%.

The CPI is used to calculate automatic increases in Social Security payments to the retired and disabled, to keep up with the cost of living. In actuality, the CPI as presently calculated doesn't even do that for most, since it is not based on the real price increases on the goods workers buy, but includes luxury goods and other items that distort the impact on the working class.

A reform of the CPI that would help workers would be to take its calculation out of the hands of the capitalist government and turn it over to the labour movement. The "independent" commission's report goes in the opposite direction.

Exactly why the commission has concluded that the current CPI overstates inflation is missing from the press reports. The New York Times, for example, says that the "problems with the index are arcane".

Working people are being told that the current CPI is wrong, but we are also told that it is an arcane matter we can't understand. Only economic specialists can grasp it. But we will suffer as a result.

"For instance", says the Times, "Social Security payments for next year are being calculated on the basis of a 2.9% increase in the cost of living. If that increase was 1.1 percentage points lower, the average monthly payment, now $724, would go to $737 rather than to $745 — a difference of $8 a month, or $96 a year. The effect would build on itself because a lower payment next year would mean a lower starting point when the benefit was adjusted for inflation the following year. In 15 years, the difference would amount to several thousands of dollars a year per recipient."

But what benefits it would bring in "balancing the budget"! — another "objective" reason for cutting the social wage. The Congressional Budget Office estimates that even a 1% reduction in the CPI would lower Social Security and other retirement payments by $34 billion a year by 2002.

Such cuts would also raise taxes on workers, because the standard deduction for individuals, personal exemptions and the income levels at which higher tax rates kick in are all tied to the CPI. By 2002, a reduction of one percentage point in the index would yield an additional $21.4 billion in tax revenues from working people, the budget office calculates. (The rich wouldn't be affected much, since they do not get certain deductions and are in the higher tax bracket already.)

Together, the cuts in Social Security and the lowering of wages through taxes could make up more than a third of the $150 billion politicians say must be cut by 2002 to balance the budget.

Union members who have contracts that include cost of living adjustments would also be hurt by lowering the CPI.

On another front of the drive to lower the social wage, little-known aspects of the new welfare "reform" law are coming to light. It turns out that a provision of the law says that there have to be cuts in aid to children with disabilities. The law turns over to Clinton the decision on which kids with severe birth defects, mental handicaps or debilitating injuries will get the knife.

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