Adopting Chained CPI Would Be a Mistake

U.S. President Barack Obama wants to trim the deficit by replacing the traditional Consumer Price Index with the "chained CPI." One appeal of this approach -- for the administration -- is that it simultaneously increases middle-class taxes and reduces future spending on programs such as Social Security and veterans benefits. According to the president's budget released today, the measure "will reduce deficits by at least $230 billion over the next 10 years," although my colleague Peter Orszag has noted that this might be overly optimistic.