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Washington plays hot potato with price index

When Sen. Connie Mack thinks about the brewing debate over adjusting the Consumer Price Index, he is reminded of a Canadian skit his father liked to quote.

"After you, Alfonse," the line goes. "No, after you, Gaston."

Although the routine is five decades old, it is being played out today by dozens of Alfonses all over Washington, each one desperately seeking a Gaston to wade into the treacherous subject first.

"It's a very delicate issue from a political perspective," said Mack, a Florida Republican and member of the Senate leadership.

The situation would be comedic if the stakes weren't so high.

At issue is how to more accurately compute the Consumer Price Index, a measurement based on the fluctuating price of some 80,000 goods. Calculated by the Bureau of Labor Statistics, the index is used to compute cost-of-living increases for 44-million Social Security recipients, 3.3-million veterans and 22.6-million people on food stamps.

And because the index, or CPI, is also used to set tax rates, personal exemptions, rental prices and some pay raises, even a slight modification would have far-reaching implications for every taxpayer.

"If you lower the CPI, then Social Security will grow more slowly, taxes will increase more rapidly and therefore the deficit will fall," said Stan Collender, a financial analyst at the Burson-Marsteller lobbying firm.

And if the deficit drops, the government will spend less money on interest payments, thus freeing up cash for programs people care about.

That is a tantalizing prospect for the men and women struggling to balance the budget. To some, it looks like easy money. But these are the same politicians who lived through the bloody budget wars of 1995 and the brutal campaign of 1996; they think they touch the price index at their own peril.

"It's so hot that everyone's afraid," said Frank Luntz, a GOP pollster and adviser to Senate Majority Leader Trent Lott.

"I'm not about to give Bill Clinton the opportunity to go in front of the TV cameras and shed a tear about how we cut grandma's Social Security benefits," said Rep. Dave Weldon, a Palm Bay Republican. "I'm not an idiot. As the saying goes, "Fool me once, shame on you. Fool me twice, shame on me.' "

Recently released confidential documents show that as far back as February 1995, Clinton's chief political adviser endorsed a strategy to rhetorically bludgeon Republicans if they touched the index.

A Democratic fund-raising letter crafted with the help of Harold Ickes accused the GOP of a "cowardly back-door political gimmick to take tens of billions of dollars out of the pockets of senior citizens." Although that letter was never mailed, Clinton's attacks on Republicans for proposing steep reductions in Medicaid and Medicare effectively used the same tactic to halt the GOP juggernaut.

By early 1997, both sides were exhausted from the partisan bickering and Clinton and Lott began talking about a budget deal. Two of the city's best horse traders, the pair hoped they could quietly negotiate a package that would trim the price index, cut some taxes and keep a healthy amount of money for such popular endeavors as education.

The Social Security reductions and tax increases inherent in a lower CPI would never pass as separate legislation, noted Collender, "but when they put it together in a package, it becomes a lot more palatable politically."

Lott even took the first step, announcing his support for a new commission to revamp the index.

Clinton liked the idea until three powerful blocs _ unions, the American Association of Retired Persons and liberal House Democrats _ protested loudly.

"What's being suggested is to put together a blue-ribbon commission of economists who will pull a number out of a hat," complained Rep. Richard Gephardt.

With that kind of firepower lined up against him, Clinton backed off.

After you, Trent, he seemed to say.

Budgeteers on Capitol Hill were miffed Clinton folded so fast.

"This is an issue on which leadership will be required, and I hope very much the president will find a way to show leadership," said Sen. Chuck Robb, a Democrat who prodded Clinton to reconsider.

Even Lott became pessimistic.

"I stuck my neck out there on CPI and nothing happened," he said. "I'm not going to push it any further. The president's going to have to grab hold of this and hug it real snug."

Several prominent economists and Federal Reserve Chairman Alan Greenspan assert the CPI overstates inflation by as much as 1.1 percent. It is an overly generous handout to beneficiaries.

"There is almost a 100 percent probability that we are overcompensating the average Social Security recipient for increases in the cost of living," Greenspan recently told a Senate committee.

If the current index remains, the average Social Security check of $724 would increase by $21 next year. Lowering the rate 1.1 percent would cost seniors about $8 a month or $96 in 1998.

The cost-of-living adjustment, or COLA, "allows folks to maintain purchasing power over time," said David Certner, an economic expert at the AARP. "The large decline in poverty among the elderly is due to the fact they have this COLA."

Rep. Charles Stenholm, a conservative Texas Democrat, said his proposal to trim the index 0.8 percent would keep the Social Security Trust Fund in the black for an extra 13 years. "That says to young working men and women this Congress is concerned about the future solvency of Social Security," he said.

Stenholm's budget, known as the Blue Dog plan, also protects low-income seniors with a guaranteed cost-of-living increase.

The AARP has lobbied to keep the Bureau of Labor Statistics as the sole arbiter, saying Congress or commissions would only politicize what should be a mathematical procedure.

But Rep. Jim Davis, a freshman Democrat from Tampa who sits on the Budget Committee, said the bureau uses outdated methods to calculate the CPI. For instance, Davis said the bureau's "basket" of goods does not include cellular phones, even though they are increasingly common.

The bureau also has trouble factoring in the tendency of shoppers to substitute cheaper products when prices rise. In other words, many people buy chicken when beef gets too expensive or shop at outlet stores instead of fancy boutiques.

Like Davis, both GOP Rep. Mark Foley of West Palm Beach and Democratic Rep. Allen Boyd of Monticello, say the index must be trimmed. Boyd has endorsed Stenholm's alternative budget.

Few other Florida lawmakers are willing to take a position on the issue.

"What I would do is have the Commerce Committee hold hearings," said Rep. C. W. Bill Young, an Indian Rocks Beach Republican.

"You have to be extremely cautious," said Rep. John Mica, R-Winter Park. "Congress and the appropriate committees should look at it."

Palm Harbor Rep. Michael Bilirakis refused requests for an interview.

Both Mack and Democratic Sen. Bob Graham support an "honest, accurate" CPI. They just won't say what that is.

What makes this debate novel is that it defies traditional generational politics.

"My initial inclination was to start a generational war, but now I feel that's a sure loser," said Luntz. "In an issue like Social Security, Americans have a deep sense of compassion and a willingness to sacrifice for others who cannot."

Peggy D. Smith, a self-described "corporate wife and late baby boomer" from Palm Harbor, is living proof of Luntz's theory that the CPI may not work as a "wedge" issue pitting one group of voters against another.

"These people are survivors of World War II, the Depression," she said. "They made their money the old-fashioned way; they earned it."

More significantly, Smith said, government relief for the elderly takes pressure off the already financially pinched middle class. "How in the world are we going to be able to save for our own pension plan, send the kids to college, pay the mortgage, pay off all the credit cards and loans and then make long-terms plans for four parents?"

Luntz believes the only way politicians can sell a change in the CPI _ or any other budget change that affects entitlement programs such as Social Security and Medicare _ is to do it together.

But there is little enthusiasm for that approach in Congress, particularly in the House, where lawmakers face the electorate every two years.

"House Republicans are generally smart politically," said Lott. "You usually don't have to burn them a second time."

From Capitol Hill, the message is clear: After you, Bill.