The purpose of this paper has been to provide a definitive estimate of the effects of an
important, known bias in the housing component of the Consumer Price Index on the budget
deficit and the Social Security trust fund. The estimated overpayment in 1999 is $3.7 billion,
and, taking interest into account, the total drain on the OASDI Trust Fund and the budget is
$20.9 billion. The 1996 present value of the entire effect of the error is $260.1 billion, a very large amount, but relatively small in comparison with a gross federal debt at the end of fiscal
year 1996 of over $5.2 trillion.6
The CPI bias resulted in substantial lifetime overpayments of OASDI benefits for cohorts
eligible under pre-1977 Social Security law who received benefits after 1974. The overpayments
will continue for many years into the future. The effect of the bias under post-1977 law was
quite different. Overpayments resulted for retired and disabled workers (and their associated
auxiliary beneficiaries) who became eligible during 1979-80. However, the CPI bias resulted
in underpayments for beneficiaries who became eligible during 1981-1984.