“Chained CPI”: What’s it all about?

As the politicians in Washington start once again to tackle the same old problems, you’re likely to hear more about a new way of measuring inflation called the “chained CPI.”

The standard way to measure inflation has been with the consumer price index (CPI). The CPI has been used to calculate annual adjustments to social security benefits, federal pensions, military and veterans’ benefits, and tax brackets, exemptions, deductions, and credits. According to some experts, the consumer price index currently used overstates increases in the cost of living.

So how is the “chained CPI” different? It makes different assumptions about how people spend. An oversimplified example: If a severe freeze drives up the cost of oranges and orange juice by 20%, people are likely to switch to a cheaper alternative, say, apples and apple juice instead of continuing to pay the higher price for oranges. This keeps spending more level than the regular consumer price index would indicate.

A switch to the chained CPI would mean that those government payments linked to inflation would rise more slowly. Applied to the tax code, the chained CPI would mean smaller inflation adjustments to tax brackets and other tax numbers, resulting in higher taxes than by using the regular CPI.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today’s small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it.

Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission.

Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations.

She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.

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