Talks: change in inflation could cut the social security (AP)

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WASHINGTON – Once considered untouchable Social Security is now in play in the debt-ceiling negotiations. And that could mean higher income taxes for many U.S. families in addition to shaved benefits for tens of millions of retirees as they age.

Social Security became part of the private discussions between President Barack Obama and Republican House Speaker John Boehner on coming up with "something big" to reduce deficits by $ 2 trillion to $ 4 trillion over the next decade. One option includes a new inflation measure for Social Security that could produce savings close to $ 200 billion through a combination of reduced benefits and higher taxes, White House officials said Thursday.

Low-and middle-income families could be hit.

The proposal would represent a reversal for Obama. In contrast to his pledge to target tax increases at the wealthy, high-income families would largely be spared from tax increases that would result from changing the way inflation is measured. And until now, the administration has been adamant that Social Security does not add to the deficit and should not be a part of deficit reduction talks.

Adopting a new inflation measure would allow policymakers to gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans. The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used CPI.

A Chained CPI assumes that as prices increase, consumers buy lower cost alternatives, reducing the amount of inflation they experience. For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters

There's no indication at this point whether Obama and congressional Democrats and Republicans — — will agree on the change. And, if they do, how it might be applied broadly. Another private meeting at the White House is set for Sunday.

The measure, if adopted across the government, would have a wide-ranging effect on taxes and government benefits, and those changes would grow over time. The change would mean smaller annual increases in Social Security payments, government pensions and the veterans ' benefits. Current payments would not be affected, but recipients would get smaller increases in the future.

Overall, the proposal would cut Social Security benefits by $ 112 billion over the next decade, according to the nonpartisan Congressional Budget Office. It would cut government pensions and the veterans ' benefits by $ 24 billion over the same time period if adopted for them as well.

Reaction from the president's own party was swift Tuesday, raising questions about whether Obama can keep Democrats on board if he agrees to cuts in Social Security. House Democratic leader Nancy Pelosi said her caucus won't support any package that includes Social Security cuts.

"Do not consider Social Security to piggy bank for giving tax cuts to the wealthiest people in our country," Pelosi said. "We are not going to balance the budget on the backs of America's seniors."

AARP, the powerful lobby for seniors, "will not accept any cuts to Social Security as part of a deal to pay the nation's bills," said CEO a. Barry Rand.

The White House has been negotiating with congressional leaders over ways to reduce the government's huge budget deficit as part of a deal to extend the nation's ability to borrow. The government has already hit its $ 14.3 billion borrowing limit, and is in danger of defaulting on its obligations if the limit is not increased by Aug. 2.

White House spokesman Jay Carney said, "The president has always said that while Social Security is not a major driver of the deficit, we do need to strengthen the program."

His statement did not directly address the possibility of reducing annual Social Security increases by changing the inflation adjustments.

"The chained CPI is nothing more than a backdoor benefits cut Washington hopes Americans won't notice or understand," said Max Richtman, acting CEO if the National Committee to Preserve Social Security and Medicare.

In most years, increased Social Security payments are based on a measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers. If Social Security adopted the new measure, annual increases would be 0.3 percentage points smaller, according to the program's actuaries.

That could be a tough hit for seniors who have gone two years without a cost-of-living adjustment and are projected to get such a small one next year that it will probably be wiped out by higher Medicare Part B premiums for most recipients.

As the possible cuts are phased in, a typical 65-year-old who started receiving Social Security benefits at age 62 would get an annual reduction of about $ 130, according to an analysis of data produced by the Social Security actuaries. By the time that retiree reached 75, the annual cut would be $560. At 85, the cut would be $984 a year.

Average Social Security benefits are about $1,100 a month, or about $13,000 a year.

"Social Security has contributed nothing to these deficits and to me has no basis for being a part of these deficits talks," said Rep. Xavier Becerra of California, the top Democrat on the House Social Security subcommittee.

If applied more broadly to the tax code, the new inflation measure could hit taxpayers at every income level, raising about $ 60 billion over the next decade for the government, according to the nonpartisan Joint Committee on Taxation. It would limit increases in the standard deduction and personal exemption that most taxpayers claim. Income thresholds for the child credit and the Earned Income Tax Credit could be affected, and contributions to Individual Retirement Accounts could be limited.

The U.S. has a progressive income tax system that taxes higher incomes at higher rates. For example, a married couple making $ 50,000 in taxable income pays a 10 percent tax on the first $17,000 and a 15 percent tax on the rest.

Those thresholds, or brackets, are adjusted each year to ensure that people don't get a tax increase just because their incomes increase with inflation. Adopting the Chained CPI would mean smaller adjustments to the brackets, leading to higher taxes for people at just about every income level.

Low-wage workers would eventually see the biggest increases, while high-income taxpayers would see only small changes. That's because the wealthiest taxpayers already pay taxes at the highest marginal rate, currently 35 percent.

For example, by 2021, taxpayers making between $ 10,000 and $ 20,000 would see a 14.5 percent increase in their income taxes with a Chained CPI, according to an analysis by the Joint Committee on Taxation. Taxpayers making more than $ 500,000 would get a tax increase of 0.3 percent, while those making more than $ 1 million would get a tax increase of 0.1 percent.

"To change to a chained CPI would place new burdens mainly on the backs of seniors, middle-income and low-income Americans," said Rep. Sander Levin, D-Mich., ranking Democrat on the House Ways and Means Committee.

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Associated Press writer Alan Fram contributed to this report.

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Egypt: security forces clashing with protesters Cairo, Egypt (AP)

CAIRO – Egypt's security forces firing tear gas clashed with more than 5,000 protesters rock-launch of Central Cairo late Tuesday, leaving dozens of injured in the latest unrest to rattle the town, witnesses and medical officials said.

Clouds of tear gas and the wail of police in riot gear Tahrir Square forces sirens as security lines are submerged battled to regain control of the central square by the protesters, many of them relatives of more than 850 people have been killed during the revolution which overthrew the longtime ruler of Egypt, Hosni Mubarak.

Families are frustrated with what they perceive as the prosecution slow security agents who is believed to be responsible for the deaths of some 850 demonstrators during the 18 days.

Rocks and shattered glass littered the streets around Tahrir, as the protestors chanted: "down with the junta". Injured protesters lay on the ground, some bloodied and dazed, before the fighting ended after Interior Minister Mansour el-Essawy issued an order before dawn Wednesday to the security services to resign.

The confrontation began Tuesday when security forces cleared a sit-in outside the State television building families of demonstrators killed, said Noureddin, an engineer who gave only his name.

"I was in front of building this morning when security forces attacked the State television," he said. "Since then, things were escalating."

The protesters were United Tuesday evening, the Ministry of the Interior, where rumor had it that two demonstrators injured earlier in the day had been taken. It wasn't immediately clear what sparked the violence outside the Ministry, but in the end the protesters were throwing paving stones and security forces firing volleys of teargas and blocking off streets around the building.

The clashes then moved to the nearby Tahrir — the epicenter of the revolution of Egypt. In a view unseen since the early days of the uprising, the central lines of security troops in riot gear sealed off main roads leading into the square, while dozens of security vehicles were parked in side streets.

The shock response of the Government, which many of the protesters from the heavy handed tactics used by the security forces before the fall of Mubarak.

"Violence and security forces is the same, said Al Maataz Hassan, an engineer."Accuse people of being thugs, then the repression. It's the same mentality as before the revolution ".

Tuesday's clashes, perhaps more serious between security forces and protesters from the revolution, are an offshoot of the tumultuous transition period the country is going through, as it strives to move away from authoritarian to democratic system.

The transition has made a step forward Tuesday with an Egyptian Court to order the dissolution of the municipal councils more than 1,750, seen as one of the last vestiges of the rule of Hosni Mubarak.

The Administrative Tribunal's decision, announced by presiding judge Kamal el-Lamei, meets an important question of the protest movement that has prompted Mubarak from power.

Local councils, with over 50,000 seats filled by elections are widely viewed as rigged, were a backbone of support for the ruling party of Mubarak. They became particularly important after 2005 constitutional amendments require presidential candidates to get support from a contingent of local Council officials as well as by members of the national Parliament. Critics saw this as a springboard for Mubarak's son, Gamal, to succeed his father in Office.

The decision of the Court can still be appealed, but popular opposition, can make it difficult for current military rulers of Egypt for the challenge.

Hamdi el-Fakharani, an engineer who has filed a court case against the boards, said 97 percent of Board members belonged to the now-dissolved Mubarak's National Democratic Party.

"They had already started a campaign by the municipal services to influence people in favour of the return of the party and saying the revolution has negatively impacted the economy," he said.

He said that he was joined in the complaint of ten Board members independent evidencing the corruption of the Council.

The dismissal of all members of the Council will give municipalities of Egypt under the control of non-elected local leaders and provincial officials, until new councils are elected.

A large demonstration is expected next week, among other things, show support for dissolving the local authorities. Activists say the advice, criticized as corrupt and flush with funds from the Government, could help the campaigns of former regime supporters in parliamentary elections, scheduled for September.

"This is, of course, an important decision. If we're having these parliamentary elections, municipal councils have been set to play an important role, "said Hafez Abu Saada, a human rights lawyer who monitored and criticised the elections of 2008 councils.

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Associated Press writer Sarah El Deeb contributed to this report.

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