The next big battle for federal workers might not be over another government shutdown, but how to measure inflation.
The long-term budget deal that lawmakers agreed last month to pursue is expected to include discussion on whether the federal government should switch from the Consumer Price Index, its current means of tracking rising costs, to the so-called chained CPI.
Chained CPI measures inflation at a slightly lower rate. Adopting that method would bring in more revenue, because tax brackets and many deductions are adjusted annually for inflation.
But it would also reduce the annual cost-of-living adjustments for Social Security and the pensions of federal and military retirees — some of whom are objecting to the prospect.
"The chained CPI is a disingenuous way [for the government] to renege on its promise and its obligations," retiree Guy Miller said.
The 56-year-old Scaggsville man, who retired as a patent attorney last year after 34 years of federal service, calculated his losses under chained CPI at more than $150,000 over 25 years.
Economists and deficit hawks have long argued that the current CPI — which measures changes in the price of a basket of goods and services — overstates inflation. They say it doesn't take into account the substitutions that consumers make when prices jump — such as buying chicken when the cost of steak rises.
Chained CPI captures those behavioral changes. The result, according to the nonpartisan Congressional Budget Office, is that annual inflation measured by chained CPI is on average 0.3 percent lower than the rate captured by traditional CPI.
"It's a more accurate measure of inflation," said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget.
In a report he co-wrote this year, Goldwein estimated that switching to chained CPI would save the government $390 billion over a decade, including $127 billion from Social Security and $38 billion from other federal retirement programs.
"There is no reason we should be overstating inflation when we pay our Social Security benefits and when we do our tax brackets," he said. "We are costing ourselves tens of billions of dollars a year by measuring inflation incorrectly."
Dean Baker, co-founder of the Center for Economic and Policy Research in Washington, agrees that the current yardstick overstates the overall rate of inflation but said there's a separate question.
"Does it overstate for the senior population?" he asked. "Most of the evidence suggests otherwise."
That's largely because seniors are heavier consumers of health care, for which costs have risen faster than for other goods and services. And being less mobile, he said, older consumers are less likely to make substitutions.
The Bureau of Labor Statistics produces an experimental index called CPI-E to gauge inflation experienced by those 62 and older. From 1982 through 2011, the annual average rate of inflation for the CPI-E was 3.1 percent, the agency said, compared with 2.9 percent for the standard inflation measures.
The disparity occurred because the costs of housing and medical care — on which seniors spend more of their money — went up faster than the costs of other goods and services. But the agency notes that the gap has shrunk in recent years.
Republican lawmakers back a switch to chained CPI.
President Barack Obama's budget proposal adopts chained CPI, but with a few conditions. Among them: Social Security recipients would receive special increases in benefits — equal to 5 percent of the average retiree benefit, or around $800 annually — to be phased in gradually over 10 years once a retiree hits age 76.
Another raise would be phased in when a retiree turned 95.
And Obama says a switch to chained CPI must be accompanied by substantial increases in revenue raised through changes in the tax code.