Although the $400 billion in cuts to Medicare should be of serious concern to African Americans since they contain provisions that would raise costs on seniors, it is the Administration’s proposal to change how the annual cost of living adjustment (COLA) is determined that is especially damning because of its discriminatory impact on African Americans.
Here’s how it works: the Consumer Price Index (CPI) is used to determine the annual COLA for federally-issued benefits such as payments received by Social Security, veterans, and Supplemental Security Income beneficiaries. The COLA is designed to provide an annual inflation-adjusted boost to these payments so that people can afford the rising cost of food, shelter, health care and other necessities over time.
The Administration proposes to substitute the regular CPI for the chained Consumer Price Index for all Urban Workers (“chained CPI”), which uses a formula that would reduce the amount by which the COLA is increased annually. Even worse, the effects of this benefit cut would be compounded over time. For example, the average Social Security retiree would see his or her benefits cut by $500 a year after 10 years. After 20 years, the average benefit would be cut by about $1,000 a year; thus, significantly reducing the purchasing power of those who rely on these benefits.
Their lack of retirement wealth means that African-American seniors are heavily reliant on the Social Security benefits they earned. Indeed, 47 percent of African-Americans seniors rely on Social Security for 90 percent or more of their income upon retirement compared to 33 percent of whites.
In a twisted bit of policy logic, the Obama Administration is arguing that the "chained CPI" is a good idea because it represents "a more accurate measure of inflation" while also acknowledging that it's a bad idea from which economically vulnerable groups need to be protected by designating special exemptions. Among the vulnerable groups they seek to protect are the very old, those who are 76 years of age and older.
The "chained CPI" would have a disproportionately negative impact on African-American retirees not only because they are more heavily reliant on Social Security benefits but also because they have the shortest life expectancies out of all of the major racial and ethnic groups in the U.S. and are the most likely to die before becoming eligible for the special exemption for the very old.
The Obama Administration will likely argue that other exemptions would benefit African Americans. Like the exemption for those who receive benefits from means-tested programs such as Supplemental Security Income and Temporary Assistance for Needy Families or the exemption, yet to be identified in any official document by this author, for those who receive benefits for a very long time.
The way this exemption was explained by a White House staffer on a conference call with African-American leaders (held on April 10) is that Social Security disability or survivor beneficiaries, among whom African-American workers and their children are disproportionately represented, would be eligible for an exemption after 15 years of receiving Social Security benefits. Given the fact that child survivors are only eligible for benefits up until the age of 18 or graduation from high school, this exemption—perhaps the cruelest of them all since these children are more likely to reside in poor, single-parent households—would only give them a potential three years of relief from benefit cuts that would make it harder for them to survive and thrive.
African Americans have been among President Obama's most loyal supporters and are very proud of his historic achievements. Yet President Obama's "chained CPI" budget proposal represents a political and policy misstep that will have racially discriminatory effects.
Instead of moving forward with this ill-advised approach, the President needs to pursue more practical policy changes—such as lifting the cap on wages—that will address Social Security's long term fiscal challenges while generating enough revenue to strengthen benefits for economically vulnerable groups of all backgrounds.