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Originally published Friday, March 1, 2013 at 9:37 AM

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Stingier inflation gauge can cut deficit by $340B

A stingier definition of inflation across the government would cut the deficit by $340 billion over the coming decade according to a new estimate released Friday.

Associated Press

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WASHINGTON —

A stingier definition of inflation across the government would cut the deficit by $340 billion over the coming decade according to a new estimate released Friday.

The Congressional Budget Office estimates that changing to the new, lower inflation adjustment known as the chained consumer price index would curb federal spending by $198 billion over that time, mostly due to lower cost-of-living increases for Social Security benefits and federal pensions.

It would also increase tax revenues by $142 billion over a decade because tax brackets would be adjusted for inflation more slowly.

The budget office's new study shows the new inflation measure having a somewhat bigger impact on the deficit than earlier estimates.

The concept behind the adjustment is that consumers substitute lower-priced alternatives for goods whose costs spike. So, for example, if the price of oranges goes too high for some consumers, they could buy alternatives like apples or strawberries if their prices were relatively more affordable. Some goods, however, such as gasoline or mortgage interest are not as easily substituted.

President Barack Obama has supported the idea in the past in failed budget talks, but only in the context of a broader bargain that would include new tax revenues. Many Democrats, however, are dead set against the idea, following the lead of powerful seniors groups like AARP.

Republicans generally support the idea and House Speaker John Boehner, R-Ohio, has repeatedly pressed it in his failed talks with Obama.

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