Club for Growth, Norquist warn of tax hikes from chained CPI

Conservative groups are warning lawmakers they have “strong concerns” that a proposal to slow the rate of inflation for government programs could result in tax increases. 

The eight groups — which include several heavyweights on the right — say the move to chained CPI would more quickly force families and businesses to pay higher marginal tax rates, and would also affect retirement contributions.

“We are not opposed to chained CPI under any circumstances,” the groups wrote in a letter to lawmakers dated Monday. “In the context of bracket-flattening tax reform which is revenue-neutral or a net tax cut, chained CPI may be an acceptable component. But as a standalone tax measure, chained CPI is a $100 billion tax increase in the first decade alone.”

{mosads}The eight groups signing the letter were Grover Norquist’s Americans for
Tax Reform; Club for Growth; Heritage Action; Americans for Prosperity;
FreedomWorks; the National Taxpayers Union; American Commitment; and
the 60 Plus Association.

“Chained CPI” would change the formula used to calculate Social Security
and other government programs by taking into account the “substitution
effect” that occurs when prices for goods and services rise and people switch to cheaper options. 

Supporters of the shift to the chained CPI argue that it will reduce
federal spending in the face of unsustainable deficits and install a
more accurate measure of inflation.

The move to the formula would also slow the growth of tax brackets, which are adjusted each year to account for inflation.

President Obama included chained CPI in his latest budget, drawing the ire of liberals who oppose entitlement cuts. The switch to the formula would likely result in lower Social Security benefits over time.

Rep. Greg Walden (R-Ore.), the chairman of the National Republican Congressional Committee, also blasted the White House proposal as an attack on seniors. But other GOP lawmakers, who have pressed the Obama administration to move more quickly on entitlement reforms, praised the chained CPI proposal as a slight step in the right direction.

Chained CPI’s potential affects on the tax code have gotten less attention. The eight conservative groups stressed that their concerns were limited to the tax changes caused by the inflation switch, and noted that “chained CPI can be restricted to just the spending side of the federal budget.”

The conservative groups, while united on the need to avoid tax hikes from chained CPI, have not been on the same page on other prominent proposals in recent months.

Club for Growth, for instance, opposed a bill championed by House Majority Leader Eric Cantor (R-Va.) that would have made changes to the Democratic healthcare law. Groups like Americans for Tax Reform supported the measure, but GOP leaders were still forced to pull the bill from the floor last week.

ATR also supported Speaker John Boehner’s “Plan B” late last year to avert the “fiscal cliff.” But other conservative groups opposed the bill, which also got pulled eventually.

— This story was updated at 4:55 p.m.