The last-minute shotgun marriage being arranged by Congress and the White House is likely to come with the proverbial dreaded foreign object floating in the punch bowl at the post-wedding reception.

As part of a deal to keep Uncle Sam from going over the fiscal cliff, the administration has agreed to a GOP plan to slow the growth in entitlement costs. It would involve an inflation-measuring formula change that would slightly reduce the size on all future cost of living adjustments in civil service, military and Social Security retirement benefits. Although the annual cost-of-living adjustment reduction has been projected at 0.3 percent, some say it would be much greater in times of high inflation when the COLAs catch-ups are needed most. Others point out that even a modest reduction in future COLAs would take its toll over time.

If approved as part of a tax-increase/deficit-reduction plan, the current system used to measure inflation (for the purposes of retirees’ COLAs) would be dropped and the so-called “chained CPI” (Consumer Price Index) would replace it. Backers say it would provide a more accurate measure of inflation for retired persons. They say the current system often overstates inflation because it takes into account things that retirees seldom buy (like major appliances) every year. Critics say it is only being proposed because over time it would greatly reduce the payout in benefits. And that it doesn’t consider a wide range of medical costs and services which always go up faster than the regular rate of inflation.

One reader, Paul of the IRS, said

I just don’t understand all the hullabaloo about the so called ‘Diet COLAs.’ How can you miss something you don’t have? And if you do miss (want) it, doesn’t that violate the biblical admonition about coveting your neighbor’s COLA?

You know, it’s not like they’re going to go back in time and make it retroactive for the past 10 years. And if it does go into effect, then, they’ll only complain when it is a low inflation year (such as this one). If the COLA were .057 and the diet COLA made it .054, do you think anybody would really notice?”

Another commenter questioned the estimated reduction of “only” 0.3 percent per COLA using the chained CPI data. “I think if you do the math you will find that 0.3 estimate is only for periods of low inflation, such as we’ve had the past few years. If inflation climbs as many predict the hit on future retirees would be much higher.”

Groups representing federal and postal workers and retirees have long worried about the a change in measuring the cost of living and its impact on future benefits. “It (the chained CPI) and the introduction of a voucher system for the FEHBP (federal health plan) are the two things that keep me up at night,” a lobbyist said some time back.

We gave a first alert on the impact of the chained COLA in an August 2011 column “Federal/Social Security COLA Stalling?,” which said that: “The proposed substitute system, the so-called ‘chained CPI’ would take into account that people adjust their spending habits (going for Hamburger Helper instead of filet mignon) based on prices.” While true it would also mean that people would constantly be adjusting their spending downward to combat ever-increasing prices.

NEARLY USELESS FACTOID

By Jack Moore

Remember the mysterious Indiana Jones-themed package that showed up at the University of Chicago. Well an eagle-eyed “Federal Report” reader tells us an explanation has emerged.

Reader, R.R., explains:

The diary was a prop recreated by a die-hard fan of the series. He sells them on eBay to people all over the world. The prop is shipped in an envelope reproduced exactly as it appears in the movie, then placed into another envelope addressed to the real buyer. In this particular instance, the prop and the interior “envelope” fell out of the real envelope (to a customer in Italy) during the mailhandling and the US Post office duly delivered the interior envelope to the University of Chicago.

(Source: KFI 640 AM)

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