I ONLY NEED AN OUTLINE IF IT IS DETAILED AND TELLS ME WHAT TO DO/WRITE IN EACH P
ID: 1187588 • Letter: I
Question
I ONLY NEED AN OUTLINE IF IT IS DETAILED AND TELLS ME WHAT TO DO/WRITE IN EACH PARAGRAPH.
The federal government currently uses the traditional consumer price index (CPI) to adjust social security benefits, other federal programs and the tax code for inflation. In an attempt to reach a compromise on a national budget, President Obama has recently proposed an alternative method for calculating cost-of-living adjustments that relies on the chained consumer price index. Thus far, the proposed change has received mixed reviews among politicians and economists; therefore, it is worth your time and effort to explore the issue in depth to formulate your own opinion. Using your understanding of economic inquiry, address the following questions in a 2-3 page paper:
What is the difference between the CPI and chained CPI? What would be the budgetary effects of using the chained CPI to make cost-of-living adjustments in federal programs and the tax code? What impact would these changes have on the national debt?
Apply the aggregate demand/aggregate supply framework to predict how such a change could potentially impact the economy in the short-run. Evaluate the long-run impacts of the change.
Do you think Congress and the President should support a switch to the chained CPI? Be sure to support your opinion.
You should begin your research by reading the April 18, 2013 testimony of Jeffrey Kling of the Congressional Budget Office on the impacts of using the chained CPI to index for inflation (http://www.cbo.gov/sites/default/files/cbofiles/attachments/44083_ChainedCPI.pdf). In addition to this report, you should cited two additional outside sources in your paper and create a separate works cited page. You may cite material from your textbook; however, it will not be counted as an outside source.
Explanation / Answer
What kind of economic metric can be called “a moral and economic disaster,†“unconscionable,†and “a fraudulent premise� A chained Consumer Price Index for all urban consumers —“chained CPI,†for short (C-CPI-U, if we’re really being austere). Applying this measure across the U.S. government’s tax and spending policies would apparently be a crime against humanity.
And yet it’s been a popular entitlement-reform proposal from conservatives for many years now, was a feature of the Simpson-Bowles and Domenici-Rivlin bipartisan deficit-reduction plans, and has now been included, with a couple of tweaks, in President Obama’s 2014 budget proposal.
What is the difference between chained CPI and the status quo? Chained CPI, most simply, is a lower estimate of inflation, and probably a more accurate measure of how much the cost of living increases each year. It can have big consequences for the federal budget.
Chained CPI is a way of constantly adjusting the existing baskets of goods to take these choices into account. The term “chained†refers to the fact that each “link†in the “chain†involves new weighting of the data, rather than being based on the original assumptions of the index. A chained price index suggests that the cost of living is growing slightly more slowly than official government calculations hold, and the BLS itself explains that the traditional Consumer Price Index is “an upper bound†to actual cost-of-living increases — even though it’s what the Social Security Administration currently uses to calculate cost-of-living increases.
The idea here is that you should not measure the cost of living simply based on the consumer price index, and then raise the costs accordingly with the rise in prices. Instead, economists say, you have to account for the substitution effect in response to price shifts. When someone cannot afford steak, maybe they buy more chicken, the theory goes. By “chaining†the CPI to account for the substitution effect, you’re really shrinking the inflation in the index, because you’re assuming that the individual will spend less by changing their lifestyle. As a result, cost of living adjustments based on a chained CPI will rise more slowly that COLAs based on an unchained one.
My level of trust that the government will, truly, lower their spending, while taking full advantage of the increased taxing calculations is the problem.
The media will loudly echo the wailing of the elderly who will get marginally less and Congress, as was demonstrated with the recent Post Office attempts to be more fiscally prudent by eliminating Saturday (junk) mail deliveries, will figure a way to bump those decreases back to a more acceptable level. Meanwhile, nary a peep will be heard from those whose taxes will increase, and feckless politicians will revel in the added money to pay out on vote-buying schemes, which they will still do, even though the same will still be paid out in benefits, raising the deficits and debt.
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