GOP Budget-Cutters Breach the Social Security Fire Wall : Congress: Plan to limit benefit increases would save billions of dollars. But it breaks an unwritten law and risks the wrath of the senior citizen lobby.

WASHINGTON —  For years, Social Security has been the great untouchable of the federal budget, a lethal third rail that politicians of all stripes pledged not to touch for fear of incurring the wrath of the senior citizens’ powerful lobby.

But Republican budget-cutters led by House Budget Committee Chairman John R. Kasich (R-Ohio) ignored the unwritten law this week, announcing plans to limit future cost-of-living increases for Social Security and other programs. The plan would save many billions of dollars in federal benefit payments.

The GOP budget-cutters’ controversial approach rests on the assumption that today’s consumer price index, the benchmark for calculating cost-of-living adjustments, overstates inflation’s impact on people’s pocketbooks.

“We want to have an accurate number,” Kasich said Wednesday, explaining that many economists believe that the CPI exaggerates the inflation faced by households. House Republicans, defending their approach, pointed out that no less an authority than Federal Reserve Chairman Alan Greenspan is among its advocates.

The emerging controversy goes far beyond economics, however, touching on issues that have vexed budget cutters for a decade and increasingly dominate the battle in Congress over spending priorities.

The House proposal, coming in the wake of restrictions planned for Medicare, amounts to an assault on the elderly, critics contended. Moreover, they argued that Americans have sent no signal that they wish to limit Social Security.

“People may debate what the last election was about,” said David Certner, coordinator for economic issues at the American Assn. of Retired Persons in Washington, acknowledging the public’s interest in reducing the deficit.

“But I thought it was pretty clear that Social Security was not going to be touched. This breaks that pledge and many people feel the same way about Medicare as well,” he said.

“In essence they’re voting to cut people’s benefits in very sensitive programs,” observed Stanley E. Collender, a budget expert with Price-Waterhouse in Washington. “Do they really want to take a vote on this?”

Whether the proposal is best termed a cut, a slowing of growth or an appropriate fine-tuning of policy is very much in the eye of the beholder.

Under the House proposal, the inflation allowance would be about six-tenths of a percentage point lower than the consumer price index, starting in 1999.

The Senate spending plan, endorsed by Senate Budget Chairman Pete V. Domenici (R-N.M.), makes an adjustment of two-tenths of a percentage point below the CPI, also in the future. It is less controversial than the bigger, House proposal, however. The Bureau of Labor Statistics, which prepares the index, acknowledges that a two-tenths adjustment might make the index more nearly accurate and has scheduled its own change for 1998.

Certainly, it is a tricky business to measure the cost of living.

Every month, the government records about 90,000 prices in more than 200 categories, including food and beverages, housing, apparel, transportation, medical care and entertainment. The inflation reading is arrived at through a mathematical procedure making use of the price information.

But consumers may not behave in accordance with Bureau of Labor Statistics assumptions. After all, if the price of asparagus goes through the roof, people can switch to broccoli.

In Senate testimony earlier this year, Federal Reserve Chairman Greenspan said that the CPI exaggerated hikes in the cost of living by as much as 1.5 percentage points. An adjustment of just 1 percentage point would yield $150 billion in deficit savings over five years, he said, a windfall that would expand over time.

Kasich said Wednesday that his proposal for the inflation allowances would save more than $50 billion after the turn of the century.

For individuals, the bite would be modest at first but would increase steadily.

Kasich’s proposal initially would leave the average Social Security recipient with an inflation allowance that is $50 per year less than under current law, according to calculations by AARP. But that difference would balloon to $600 annually by the 10th year--and increase after that.