Current law makes automatic cost-of-living adjustments for many entitlement programs based on the consumer price index (CPI). The Bureau of Labor Statistics (BLS) adopted another measure of inflation, the chained CPI, designed to be a more accurate measure of inflation, by accounting for changes in spending patterns and to remove statistical biases. According to BLS, the chained CPI has been about 0.25 percentage points lower than the CPI since 2001. Congress has already adopted the chained CPI for much of the tax system, such as annual adjustments made to individual income tax brackets.

Our proposal would extend this more accurate measure of inflation to adjustments for federal spending programs. It would reduce the deficit by a little over $200 billion over ten years. About two-thirds of these savings would be realized in Social Security spending. Savings in other federal retirement programs (civil service and military retirement and veterans’ pensions) and federal health programs (Medicare, Medicaid, and Affordable Care Act (ACA) exchange subsidies) would account for most of the remaining savings. The Bowles-Simpson Commission’s 2010 report recommended adoption of the chained-CPI as one of its recommendations.