The Sneaky Idea That Could End the Fiscal Cliff Showdown
What if I told you we could raise taxes, cut entitlement spending, and break the cliff stalemate for good, by changing one obscure policy? Ladies and gentlemen: Meet chained CPI.
If you're growing weary of the fiscal cliff, I do not blame you. Budget deals can be powerfully wearying stuff. But they are rarely as complicated as they seem from a distance.
Take, for example, the new proposal that some Republicans and Democrats think might end this terrible cliff showdown for good. It would involve a simple change to the way we measure cost-of-living. The proposal is called chained consumer price index -- or chained CPI.
Please don't run away. Yes, this sounds like an awfully fusty and complicated idea. That's somewhat the point, as Matt Yglesias mischievously points out, since fusty and complicated ideas are the least likely to raise the ire of voters who don't understand them. But chained CPI, in addition to being key to a budget deal, is also simple to understand.
LESS SPENDING, MORE REVENUE
Each year, wages and prices tend to go up. You know that already. But by how much? Washington needs to know. Social Security checks are supposed to grow each year to keep up with the cost of living, and tax brackets are supposed to go up each year to avoid a stealth tax increase on households.
Today, Washington tracks cost-of-living changes with various inflation measures that calculate the price of a "basket of goods." That's good for keeping track of a finite set of prices. But what if people start buying stuff outside that small basket? A classic example: If the price of romaine lettuce skyrockets, today's inflation measure assumes your salads get much more expensive, and your cost-of-living would go up. In the real world, though, maybe we'd just buy more iceberg lettuce. Maybe we'd stop eating salad, altogether.