Two directions on tax reform

Demolishing AEI president Arthur Brooks's claim in today's WSJ that Americans do not favor progressive taxation, Jonathan Chait cites a public opinion snippet that raises a fundamental question about tax reform (my emphasis):

The Quinnipiac University poll found that 60 percent of Americans among both major political parties think raising income taxes on households making more than $250,000 should be a main tenet of the government's efforts to tame the deficit. More than 70 percent, including a majority of Republicans, say those making more than $1 million should pay more.

The question is: leaving aside the precise optimal level for the top marginal income tax rate, why is the highest bracket fixed at a mere $250k in family income?  Matt Yglesias and Nate Silver batted this question around in March '09. Silver:

 What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

Bracketing up: will Obama soak the superrich?

Given Americans' immersion in low tax ideology, how can Obama fund his ambitious plans long-term? Matthew Yglesias floats an idea that occurred to me years ago:

some day I should write again about the idea of making tax brackets infinitesimal so that there is no “top bracket.” This would have been unworkable 100 years ago, but with computers there’s no reason we can’t do it.

In other words, there should be an algorithm for perfectly progressive tax rates that ratchet up infinitesimally for every dollar earned, rather than bumping up abruptly at fixed thresholds.

More prosaically, Yglesias floats the idea of adding new marginal tax brackets above the current top level ($357k). While he minimizes the potential for raising significant revenue this way, Nate Silver starts the math and finds otherwise:

What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

But today, the threshold where the top tax bracket kicks in isn't $75 million, or $5 million, or even $1 million ... it's a mere $357,700. The progressivity of the tax code stops there....

The question, of course, is why there isn't a millionaires tax bracket now ... or even a multi-millionaires tax bracket. I haven't run the numbers, but I'm guessing that if you established a new tax bracket at, say, 40.5 percent, that started at incomes of $1,000,000 or more, this would bring in as much revenue to the government as restoring the $250K tax bracket (which is really $360K now given indexing to inflation) to 39.6 percent, as it was under Clinton.

Brushing this subject without quite hitting on it, meanwhile, Clive Crook gives the rationale for creating new upper-level brackets -- though he himself favors the regressive but broader-based VAT:

Not everybody would regard two-earner households with an income of $250,000 a year as rich; and many of the taxpayers in question have seen their retirement savings, college funds and housing equity destroyed. The scandal of widening inequality that still animates the Democrats' thinking is a story about the top fraction of one per cent of the income distribution, not the top end of the middle class.

I wonder if Yglesias hasn't in fact stumbled on Obama's as-yet-veiled long range tax plans. Obama claims that he is going to tackle the long-term sustainability of the Federal budget; he's meanwhile planning large increases in Federal spending while promising not to raise taxes on anyone earning under $250k; and a core commitment in his campaign was to roll back the galloping rise in income inequality that Crook alludes to. There is a lot of wiggle room to raise taxes on the superrich while staying well below past U.S. norms. It's probably either that or a VAT. Or both...

Bracketing up: HCR, income redistribution and tax reform

David Leonhardt  points out today that the health care bill represents a significant check to the growth of income inequality over the past generation. This point about its tax impact triggered a memory:

A big chunk of the money to pay for the bill comes from lifting payroll taxes on households making more than $250,000. On average, the annual tax bill for households making more than $1 million a year will rise by $46,000 in 2013, according to the Tax Policy Center, a Washington research group. Another major piece of financing would cut Medicare subsidies for private insurers, ultimately affecting their executives and shareholders.

The memory was this: lefty blogger speculation at the dawn of the Obama presidency as to whether Obama would seek to reengineer tax brackets. Nate Silver:

What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

But today, the threshold where the top tax bracket kicks in isn't $75 million, or $5 million, or even $1 million ... it's a mere $357,700. The progressivity of the tax code stops there....

Chaining ourselves to (slightly) higher tax rates

I was going to suggest a couple of potentially good things about chained-CPI, a slower and allegedly more accurate measure of inflation than the one currently in use, as a means of boosting tax revenue. Josh Barro slowed me up. Having criticized chained-CPI as a means of reducing Social Security benefits, which Barro believes should be indexed to income growth rather than inflation, he moves on to taxes:

Inflation indexing of the income tax code also makes little sense. Every year, income tax brackets are adjusted upward in line with CPI. So, while the 25 percent federal income tax bracket started at $34,500 of taxable income in 2011, it doesn't start until $35,350 for 2012. But, except in recessions, incomes tend to rise faster than price inflation. That means that, absent changes in tax law, a taxpayer at any given place in the income distribution will face a higher effective tax rate over time.

This effect is called "real bracket creep," and it’s undesirable if we want a tax code that produces stable collections and a stable distribution of the tax burden over time. Indexing tax brackets to national income would cause the bracket thresholds to rise faster, eliminating real bracket creep.

Where taxes are always too high

Another day, another deeply misleading screed on taxes by a Wall Street Journal editorialist - in this case, Stephen Moore. Democrats, he warns, are proposing tax increases that will bring us "back to the taxes that prevailed under Jimmy Carter, when the highest tax rate was 70%."  By adding together every tax increase that any Democrat is currently proposing, along with every increase implemented under Bush Sr. and Bill Clinton, he gets to an ill-defined "tax rate" of 62%.  That's hardly 70%, (or the 91% top marginal income tax rate that prevailed under Eisenhower), but what's an extra 8% among scare tacticians?   

Moore would have us believe that federal taxes have been climbing relentlessly since the halcyon days of Reagan's second term, when the top marginal income tax rate was, he says, 28% (it was actually 33% in a bracket below the top bracket).  Never mind that federal tax revenue as a percent of GDP is currently lower than it was at any point in the Reagan years, and is in fact at its lowest point since the early 1950s. To paint this picture, Moore needs almost one distortion per paragraph. A sampling:

De-deducting your way to $800 billion in new revenue

Available information about Obama's fiscal proposal is surprisingly sketchy, unless I'm missing something.  Forgive me, then, if I get something fundamentally wrong here. But the proposal is said to closely track Obama's 2013 budget, and it seems to me that if you moderately expand a key revenue raising proposal in that budget, it would be possible to raise $800 billion in revenue over ten years by reducing deductions for the wealthy. Maybe not desirable as an opening gambit, but hardly mathematically impossible.

The provision in question, on page 39 of the budget, would reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000 and individuals with incomes over $200,000 (at 2009 levels, to be adjusted for inflation).  That is, suppose you're taxed at a 33% rate and you make $3600 in charitable contributions. At present, deducting that amount would lower your tax bill by $1200.  At a 28 percent deduction level, your bill would be lowered by $1008; you would pay $192 more.  That change, across all deductions, is projected to reduce the deficit by $584 billion over ten years.

I'm in Mitt Romney's tax bracket...

not really, but in 2011 my wife and I paid the same 14% (roughly) in federal taxes on our income as he did. Which seems not right, since his household income is over 100 times ours.  In any case, the Romneys and the Galeota-Sprungs are among the two thirds of American households that, according to David Leonhardt, pay less than 15% of their income in federal taxes.

Our tax return is an interesting cross-section of the current federal tax system -- in one way quite typical (net result) and in another not so typical (how we got there). While my wife is a salaried worker, I am self employed, and that introduces somewhat self-canceling distortions. The two salient features are the self-employment tax, which doubles Social Security and Medicare taxes on income up to $106,800, and  the individual 401k, created in I think 2005 for solo self-employed taxpayers, which allows solo self-employed people over 50 to contribute up to $54,000 yearly to their retirement plans, deducting that contribution from their taxable income.

A core problem for Democrats?

James Clyburn, third-ranking House Democrat and Supercommittee member, indirectly points up what may be Obama's greatest failing:

Clyburn, in a separate “Political Capital” interview airing on the same program, said a large deal approaching $4 trillion isn’t likely. He said he sees a chance of a smaller package as long as Republicans agree to revenue increases.

“I’ve kind of given up on big and bold, but I’m never going to give up on balance,” said Clyburn, of South Carolina.

If Republicans insist on extending Bush tax cuts for the wealthy “then we probably won’t get a deal,” he said.

Clyburn, the third-ranking House Democrat, said he hopes President Barack Obama won’t relent as he did last year and allow the tax cuts of his predecessor to continue again.

“I have no idea whether he will or not,” Clyburn said. “I hold out hope that the president will hold fast.”

That is a pretty staggering lack of faith in the team leader, and you can't call it unjustified.  Putting lipstick on the Aug. 1 debt deal pig, the White House did voice a rather weak Obama promise -- not even really a promise, more like a statement of capability -- to veto any legislation that extends the Bush tax cuts for the wealthiest:

Obama and further deficit reduction

In response to Obama's reiteration during a pre-Super Bowl interview that he's seeking new revenue by curbing tax deductions for the wealthy, Andrew Sullivan reverts to favorite (though somewhat modified) mantras:

I’d love those loopholes to be closed. But that’s not real, serious revenue-raising tax reform. It’s old-school class demagoguery, not 2008 Obama honesty. If we are to control future debt, and to do so in part through ending tax deductions, we simply have to include the mortgage deduction, the state tax deduction, and the charity deduction – or find a way to cap those deductions past a certain income level. Nothing else comes close to making a difference. And yes, that means the middle class will get hurt a little. That’s what “additional revenue” in the amount required entails.

So less about the Cayman Islands and more about the sacrifices we need to make, please. I really hope the ACA reduces healthcare costs, but I don’t think it’s fiscally responsible to rely on experiments that may well yet fail. Baiting the super-rich is easy. Reducing the deficit responsibly is extremely hard – unless this president is prepared to be blunter and clearer than he was in this interview. And this, recall, is at the beginning of his second term, with maximal leverage at his disposal.

In the two years since Obama's 2011 SOTU, when Andrew called on Obama to make a crusade of deficit reduction, he has come a long way toward a liberal perspective on the budget -- acknowledging that the Tory austerity program in the UK has been a failure and at least partially recognizing, as here, that controlling healthcare costs is basically the whole of the U.S.'s long-term budget challenge.  But Sullivan still can't quite shake the notion that long-term budget planning calls for "sacrifice,", as if deficit reduction were some kind of war effort rather than a component of seeking the greatest prosperity for the greatest number.  And he misreads Obama more than one way here.

Do income estimates on ACA marketplace applications indicate large-scale "fraud"?

Note: All xpostfactoid subscriptions are now through Substack alone (still free), though I will continue to cross-post on this site. If you're not subscribed, please visit xpostfactoid on Substack and sign up.

 Brian Blase, a conservative healthcare scholar at the Paragon Institute, is out with an analysis of 2024 ACA marketplace enrollment (summarized in this WSJ op-ed) claiming that millions of enrollees have mis-estimated their incomes to claim benefits to which they are “not entitled.” Here are the core claims:

In nine states (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Utah), the number of sign-ups reporting income between 100 percent and 150 percent FPL exceed the number of potential enrollees. The problem is particularly acute in Florida, where we estimate there are four times as many enrollees reporting income in that range as meet legal requirements.

The problem of fraudulent exchange enrollment is much more severe in states that have not adopted the ACA’s Medicaid expansion as well as in states that use the federal exchange (HealthCare.gov). In states that use HealthCare.gov, 8.7 million sign-ups reported enrollment between 100 percent and 150 percent FPL compared to only 5.1 million people likely eligible for such coverage, or 1.7 sign-ups for every eligible person….

Unscrupulous brokers are certainly contributing to fraudulent enrollment and the enhanced direct enrollment feature of HealthCare.gov appears to be a problem. Brokers just need a person’s name, date of birth, and address to enroll them in coverage, and reports indicate that many people have been recently removed from their plan and enrolled in another plan by brokers who earn commissions by doing so.

Blase’s core conclusions — that benefits generous enough to induce the uninsured to access them should be scaled back, and that efforts to streamline enrollment should be broadly rejected — are unwarranted, as argued below. His use of the term “fraud” is overbroad. But he does point to weaknesses in enrollment security and incentives to agent malfeasance that are reflected in enrollment data and need to be addressed.

Submerged state update: Obamacare's gift of the MAGI

[UPDATE, 10/24/13: Per "Freelancer" comment below, there are multiple definitions of MAGI in the tax code, and in the initial post I used the wrong one. Erroneous info marked below. If you got here by search and are simply looking for info about how to calculate MAGI in the ACA, go to Freelancer's post or to this summary sheet of what income to include/exclude]

[UPDATE 2, 12/23/13: Now that actual plans, prices and subsidies can be viewed, I have a series of posts exploring various income/subsidy scenarios. Last in series here. ]

Covered California, the state entity enthusiastically administering the state's health care exchanges, offers not only posted price estimates for the different plans offered in the exchanges, sorted by age and income, but also a personal cost calculator, in which you punch in the number of people in your household, their ages, and your family income to get an estimate of both the cost of a mid-level silver plan and your subsidy.

One fact worth mulling is that the income on which the subsidy is based is the Modified Adjusted Gross Income (MAGI) based on IRS filings. That's a reminder that the premium subsidy is another tax cut (offset in large part by increased taxes on the wealthy, employers, medical device makers and others). The ACA's premium support is one more benefit credited negatively, by lowering the tax bill, the social service mechanism of choice for a tax-averse polity.  Bowing to preferred conservative methods, we've added another subaqueous pillar to the Submerged State.

The "m" in MAGI is important, however, as it modifies the adjusted gross income (AGI) we're all familiar with on our tax forms by adding important deductions back into the total -- e.g., student loan interest, tuition, IRA contributions, and the deduction for half the self-employment tax. The "m" in some measure avoids piling subsidy on subsidy, or augmenting one incentive with another.

The use of MAGI rather than AGI is bad news for the self employed, who I assume make up a large proportion of those who make enough money to qualify for  premium subsidies but who lack access to employer-provided health insurance. But it could be worse.

Obama's uncertain trigger finger, cont.

I have suggested before that Obama's endgame in the deficit reduction fight is basically the busted Boehner deal, which in turn looks awfully like the plan the President sketched out in April: an alleged $4 trillion in deficit reduction over 10-12 years, with $800b -- $1 trillion coming from new revenue, $2+ trillion in alleged spending cuts, and close to $1 trillion from alleged reduced interest payments.  Two bullet points in the White House's outline of the debt deal struck in early August would seem to bear this out:

•  ...the President will demand that the Committee pursue a balanced deficit reduction package, where any entitlement reforms are coupled with revenue-raising tax reform that asks for the most fortunate Americans to sacrifice. 

• The Enforcement Mechanism Complements the Forcing Event Already In Law – the Expiration of the Bush Tax Cuts – To Create Pressure for a Balanced Deal: The Bush tax cuts expire as of 1/1/2013, the same date that the spending sequester would go into effect. These two events together will force balanced deficit reduction. Absent a balanced deal, it would enable the President to use his veto pen to ensure nearly $1 trillion in additional deficit reduction by not extending the high-income tax cuts.

Matt Miller's self-cancelling 'don't worry about the deficit now' argument

Matt Miller's argument that worries about the Federal deficit are overblown is self-cancelling.

The argument has two prongs. First, per his experience in the Clinton administration in 1993, he suggests that current deficit forecasts are often overblown.  A period of strong growth can change the picture fast. Second, Miller asserts that we more or less know what to do but lack the political courage.

The second point at least is incontrovertible.  Miller sketches out two key planks of likely deficit reduction: breaking Obama's pledge not to raise taxes on people making less than $250k per year and "trimming social security benefits for better-off retirees."  In other words, raise taxes and cut benefits.

But his argument that we should not worry now about the looming need to do just that makes no sense.  Blame Obama if you will for his no-new-taxes-under-$250k pledge. (I do: I have always thought that David Brooks' one valid fundamental criticism of Obama during the campaign was that this pledge would box him in.) Or defend it as a valid attempt to avoid the recurrent pattern of Republicans destroying our finances with tax cuts and Democrats getting killed at the polls for raising them -- as they did in 1994 -- by getting as much juice as possible out of taxing the wealthy.

98% of Americans with health insurance are subsidized. How bout the other 2%?

While the ACA has reduced the ranks of the U.S. uninsured by some 17 million, and currently subsidizes private health insurance plans for about 9.4 million* people, it has also raised the price of health insurance for most of those who have to buy their own insurance and don't qualify for ACA premium subsidies.

The latest Kaiser Family Foundation latest survey of enrollees in the individual market suggests that 64% of those enrollees obtained their plans in the ACA marketplace, which means that 53% of current individual market enrollees are subsidized. Borrowing Charles Gaba's estimate of 11.3 million current marketplace enrollees indicates a total individual market enrollment of 17.7 million, about 8.3 million of whom do not get premium subsidies. Some of those full-freight enrollees may be caught in the ACA's family glitch -- that is, an employer offers insurance that's deemed affordable for the employee and so disqualifies her from subsidies, even though family coverage may be far from affordable. Most, though, presumably earn too much to qualify for subsidies.

Those who buy their insurance in the individual market and get no subsidy at all are the only insured Americans whose insurance is unsubsidized, and they are a tiny minority of the insured population. 147 million people who get their insurance through an employer are subsidized via the tax exclusion for employer-sponsored health insurance. 72.4 million Medicaid enrollees and 55.5 million Medicare enrollees are subsidized, as are about 9 million VA-enrolled veterans and, again, 9.4 million ACA marketplace enrollees.

An incentive that works less well than I thought

A recent study indicating that tax incentives for retirement savings are not very effective is changing my thinking about that incentive, specifically about how it's worked in my life.

My wife and I are savers. Arguably, we've had to be, as our income was pretty low until our late thirties, and neither of us is building a fixed pension.  Plus, we've had maybe 40-60% of our money in stock funds since we started saving in the late nineties, and what with two market crashes I reckon our return has been less than 5% per year.

Since the late '90s I've had the kind of solo retirement accounts allowed to the self-employed. Early on, I was allowed to save 20% of my income, and I was comfortable with that, and my wife has done the same through her employer.  Since the individual 401k was created in 2004 or 2005, however, I've been allowed to tack on an ever-increasing contribution on top of the 20% -- this year, an extra $22.5k, since I'm over 50.  That is a tall order.  I am always acutely conscious that a large chunk of every allowable dollar that I fail to contribute goes to taxes -- avoidably. So I come as close to maxing out as I can.  I've always assumed that this a good thing -- that this incentive is working as it should.

Social Security benefits are skewed to low earners

There's been much bloggiating lately on means-testing social security, raising the retirement age, or listing the cap on earnings subject to the social security tax (FICA), currently set at $106,800. The FICA tax is 6.2% each for employer and employed -- or 12.4% for the substantial percentage of high earners who are self employed.

While raising the retirement age disproportionately affects lower earners, who have lower life expectancies,  lifting the FICA cap combined with making benefits contingent on need would mean truly socking it to the wealthy and affluent.  Proponents -- including, oddly, traditionally zealous enemies of "confiscatory" taxes on wealth -- seem to suggest that high earners are getting some kind of free ride from social security. Here's John Boehner, for example, in favor of means-testing:

If you have substantial non-Social Security income while you're retired, why are we paying you at a time when we're broke?

What seems lost in this conversation is the fact that at present social security benefits are allocated disproportionately to low earners. It's true that the tax is not progressive -- those earning $100k pay the same percentage as those earning $20k, while and those earning, say, $213,600 (twice the cap) pay half the rate on their total income.   But the benefits reaped constitute strongly diminishing returns as one's income increases.  Benefits are based on a taxpayer's  average indexed monthly earnings (AIME) up to the taxable cap. Of those earnings, averaged over 35 years, those who retire at age 66 currently get the following in SS benefits:

• 90% of the first $761 of AIME
• 32% of the AIME between $761 and $4,586
• 15% for the AIME above $4,586 (up to $8900, beyond which there's no tax or benefits).

Larry Summers hearts the busted Obama-Boehner deal

Progressives were having conniptions when details of Obama's never-consummated deal with Boehner emerged.  Three trillion in spending cuts, just $800 billion in new revenue -- no more than expiration of the Bush tax cuts for the wealthiest 2% of Americans would yield, and less than half the amount proposed by the right-leaning Bowles-Simpson plan. On the benefit side, social security benefits chained to the "chained CPI" (a less generous inflation calculation than the current CPI) -- and more jarringly, the Medicare eligibility age raised to 67.

A plan, it would seem, that Timothy Geithner could get behind (and probably was behind).  But I was surprised to read from Larry Summers today that he too apparently considers approximately the same level of revenue and presumably the same revenue-to-spending-cuts ratio sufficient:

Will Trump's cutoff of CSR reimbursement boost ACA enrollment by 2-3 million, per CBO?

Trump's cutoff of federal funding for Cost Sharing Reduction subsidies (CSR) last October created discounts in bronze and gold plans for many subsidized enrollees in the ACA marketplace, as explained below.  The availability of these discounts partly offset other forms of sabotage, so that on-exchange enrollment was down a relatively modest 5%.

On May 3, CBO Director Keith Hall estimated in a blog post that the CSR cutoff has boosted or will boost marketplace enrollment by an astonishing 2-3 million. The verb tense and time frame is ambiguous, per below (my emphasis). The estimate surely does not apply to 2018 -- I doubt the enrollment boost this year exceeded 500,000, for reasons explained below.

Here's Hall's explanation of how the CSR discounts came about and their likely effects:

On the basis of an analysis of insurers’ rate filings, CBO and JCT estimate that gross premiums for silver plans offered through the marketplaces are, on average, about 10 percent higher in 2018 than they would have been if CSRs were funded through a direct payment. The agencies project that the amount will grow to roughly 20 percent by 2021.

If I were king of the forest

To while away an hour, and not straining to increase my present level of knowledge before amusing myself, let me consider: how would I tackle the United States' budget problems if I could make policy by fiat?

My broad fiscal goals would be to reduce the rate of medical inflation while expanding coverage and improving outcomes, reduce defense spending without compromising U.S. security, make the tax code fairer and more efficient, create incentives to reduce fossil fuel consumption, increase government revenue without crimping sustainable economic growth, make social security solvent, and let discretionary domestic spending levels be determined on a cost/benefit basis, without arbitrary spending reduction targets.

First, I would find a way to give the government (probably federal but possibly state, or some hybrid) the sole power to set uniform prices for all medical procedures.  Every other wealthy nation on earth provides universal healthcare to its citizens, and virtually all of them accord sole pricing power to the government (provincial governments in Canada's case), whether or not they strain those payments through some form of private insurance. In the U.S., we pay far more per procedure than any other country, primarily because the government lacks this pricing power.  Our doctors -- specialists, in any case -- are overpaid, an advantage (to them) partly offset by the ridiculous administrative costs of dealing with multiple insurers, the outsized cost of malpractice insurance, and the huge financial burden of unsubsidized medical school. I would seek to ease those burdens while also reducing most specialists' profit margins and perverse incentives to provide expensive care whether or not it's warranted.

Second, I would empower the medical payment system's overseers to condition coverage for specific procedures on outcomes research. I would do this cautiously, since such research is often ambiguous, and one size does not fit all; expensive procedures that do not seem to be more effective than cheaper alternatives might be covered under certain circumstances, or less fully. But broadly, former U.K. health minister John Reid's watchword would be mine: we cover everybody, but not everything. Also, I would fully resource all of the cost containment measures in the Affordable Care Act.

Two approaches to Social Security reform

Ezra Klein has recommended the deficit reduction plan put forward by the Bipartisan Policy Center* as "easily the most thoughtful, detailed and credible deficit reduction plan on the table. On social security, the BPC plan overlaps in two major features with the  that of the Bowles-Simpson commission. But one major difference is instructive.

First, the two major points of overlap. Both plans would gradually lift the cap on earnings subject to social security to the range of $180-190k in today's dollars, the level needed to restore a target set in 1977 of taxing 90% of Americans' wage earnings.  Both also propose to slow down the cost-of-living adjustment by moving from the current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to a so-called "chain-weighted" CPI (CPI-U) that aims to account for changes in consumers' habits when the prices of particular items goes up. According to the BPC plan, the "chained" CPI-U is estimated to grow .3 percentage points more slowly (I assume annually) than the CPI-W. According to the Bowles-Simpson plan, these two measures would close 61% of the existing shortfall over 75 years.


The most instructive difference is in changes to the benefit formula -- the percentage of their lifetime average indexed monthly earnings (AIME) that workers in various income brackets earn as a permanent social security pension.  Both plans, it should be noted, eschew so-called "means-testing" of benefits -- that is, proportionately reducing benefits for those who have significant other sources of retirement income. Means-testing is a GOP talking point for reasons I can't fathom, since it constitutes a major disincentive to accumulate wealth and would raise only modest additional revenue, since the vast bulk of social security payouts go to non-affluent Americans.