GOP Fiscal Cliff Offer: Chained CPI - Business Insider

UPDATE:

According to NYT's Jonathan Weisman, the GOP has pulled its previous proposal for a Chained CPI.

See a fuller explainer below.

Earlier: As you can see in our Fiscal Cliff liveblog the negotiations are at an impasse, reportedly because the Republicans have tossed in a demand that Social Security benefits be cut.

They don't actually call it a "cut" but rather a change to how benefits are indexed. Currently benefits rise every year in step with CPI. The GOP wants it to rise in step with an alternative measure of inflation called the Chained CPI. Dylan Matthews at Wonkblog has a good in-depth explanation of how the Chained CPI works, but the gist is that the Chained CPI tries to take more into account how people substitute cheaper/inferior products when the price of their preferred goods rise.

It's not a preposterous notion to change how Social Security is indexed, but as Josh Barro noted in a great Bloomberg View piece, there's no question that changing the indexing is a benefits cut.

So back to today's talks.

Here's the key sequencing you need to know.

Obama said on Meet The Press that a Chained CPI is an example of something he could get behind (in terms of spending cuts) that showed he was serious about not giving into the far left of his party (the left wing hates the idea of a chained CPI).

Now Democrats are saying that the GOP insistence on including this is a poison pill.

Republicans are hammering Democrats for this inconsistency. MSNBC's Joe Scarborough said in a tweet: "This morning President Obama bragged about taking a tough stand on Social Security. This afternoon Harry Reid took his offer off the table."

But the key point here is that Obama is only going to give in on entitlement cuts if it's part of a "grand bargain" that sees significant GOP concessions on taxes. What's infuriating Democrats is that the Chained CPI is being tossed in as part of a late "small bargain."

So that's where we're at with this story. It could all be irrelevant in a bit.

Follow along LIVE here >

Source: http://www.businessinsider.com/gop-fiscal-cliff-offer-chained-cpi-2012-12

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