December 4, 1996

Analysis: Fixing Scales for Measuring Inflation Won't Be Easy _______________________________________________________________

Panel Says Errors in Inflation Data Drain U.S. Budget _______________________________________________________________

By DAVID E. ROSENBAUM

WASHINGTON -- Say the owners of a grocery store discovered that the scales they used to weigh produce were out of whack and that their profits were down because they were undercharging for fruits and vegetables. The first thing the grocers would do would be to fix their scales.

By the same token, when the government discovers that it has been measuring the rate of inflation wrong at a cost of billions of dollars a year in extra benefit payments and lost tax revenue, one might expect officials to change their calculations.

But this is politics, not apples and bananas. If a change is made in the way the annual cost-of-living adjustments are figured for retirement benefits and taxes, as a congressional advisory commission is recommending, it will come slowly and only after a fierce political struggle.

The White House suggested Tuesday that President Clinton would not take a stand any time soon on whether such a change should be made. Republicans in Congress said they were not about to agree to a change in cost-of-living adjustments unless the president proposed one first.

Both sides have learned the lesson that fiscal responsibility can turn into a political disaster.

The budget that Clinton pushed through Congress in 1993 without any Republican votes was in part responsible for the fact that the federal deficit fell from $255 billion in the fiscal year 1993 to $106 billion in the year that ended last Sept. 30. This was accomplished at almost no cost to most taxpayers, since most of the tax increase fell on the wealthy.

But Republicans portrayed the president as having sculpted the biggest tax increase in history. This line of attack helped them to win control of Congress in the 1994 elections.

Then last year, the Republican Congress approved a budget that limited spending on Medicare. The Republican plan was only slightly more austere than the one proposed by the president himself. But the charge that Republicans wanted to gut Medicare was a big part of Clinton's re-election artillery.

The truth of the matter is that even a 1 percent reduction in cost-of-living adjustments would save the government about $500 billion over the next decade and make balancing the budget significantly less daunting. Individuals and families would feel the change, but it would hardly be enough to alter their standards of living.

The average Social Security payment starting in January will be $745 a month. A 1.1 percent cut would mean a reduction in the average retirement benefits of $8 a month, or $96 a year.

As for taxes, a family of four that has taxable income of $50,000 a year and takes the standard deduction would have a tax increase of slightly less than $100 a year -- the consequence of more income being taxed at 28 percent instead of 15 percent, a lower standard deduction and smaller personal exemptions. Very wealthy taxpayers would hardly be affected at all, since they are already in the top tax bracket, itemize their deductions and are not entitled to personal exemptions.

But the rather modest effect such a change would have on retirees and working taxpayers hardly diminishes the political challenge.

When the matter came up last Sunday on the NBC interview program "Meet the Press," Sen. Daniel Patrick Moynihan of New York, the top Democrat on the Finance Committee, and Sen. Don Nickles of Oklahoma, the deputy Republican leader, agreed that the government should change to a more accurate measurement of inflation. "You're not trying to take anything away from people, just to get the right number," Moynihan said.

But as a practical matter, Nickles said, Congress will not budge until Clinton takes the first step. Otherwise, the Republicans run the risk of having to take primary responsibility for cutting Social Security and raising taxes.

In theory, the president could make the change unilaterally. After all, inflation adjustments are made on the basis of the Consumer Price Index. The index is compiled by the Bureau of Labor Statistics. The bureau is in the executive branch, a part of the Department of Labor. Clinton could simply order a change in the way the index is calculated.

But he almost certainly will not do that. Data from the Bureau of Labor Statistics are widely regarded as sacrosanct -- above politics, like, say, Census Bureau data.

The last president who tried to tamper with the agency's operations was Richard M. Nixon. He decided that the monthly unemployment figures were damaging him politically. So he ordered officials at the Bureau of Labor Statistics to stop having news conferences to announce the data, and there have been no such news conference since then.

But the same information has continued to come out because the Joint Economic Committee of Congress, then controlled by Democrats and now run by Republicans, began routinely calling the director of the bureau to testify publicly on the day the unemployment figures are announced.

The episode resulted in considerable political embarrassment to Nixon.

If the method of calculating the inflation adjustment is changed, it will most likely happen as part of the budget negotiations between Clinton and Congress. That way, the two sides can move simultaneously, and neither can be accused of taking the first step.

But don't bank on it happening. Most Republicans in Congress have pledged not to raise taxes. Democrats have been elected for years on the basis of their fealty to Social Security.

In politics, that counts for more than the logic of using accurate scales.