Matt Lewis

Chained CPI as a stealth tax?, ctd

Yesterday, I wrote about how including chained CPI as part of a deficit reduction grand bargain would likely result — not only in Social Security savings — but also in a sort of stealth middle-class tax increase (in the form of bracket creep.)

A smart reader reminded me that the government-wide, tax-increase version of chained CPI was part of a deficit reduction plan Republicans offered back in December.

As the New York Times reported:

Republicans did produce proposals that could create a political backlash. Of the plan’s savings, $200 billion over 10 years would come from changing the way the government calculates inflation, which would slow benefit increases in programs from Medicare to Social Security and raise taxes by slowing the annual rise in tax brackets. Republican aides said that it would be unpopular, but that it was the right response to deficits still topping $1 trillion.

My theory is that chained CPI has a real chance of being implemented, precisely because most Americans don’t know what it is. Having said that, it is possible that outside groups on the left and the right could draw enough attention to the potential downsides to sink it.

For example, after my post went live, Ryan Ellis of Americans for Tax Reform, tweeted this: