SOURCE: The Chapwood Index

August 07, 2015 06:00 ET

Chapwood Index Proves Rising Taxes Main Culprit for Cost of Living Increase of 9.9% Across the United States

DALLAS, TX--(Marketwired - August 07, 2015) - The cost of living increased an average of 9.9 percent across the top 50 major cities in the U.S. between July 1, 2014, and June 30, 2015, according to the Chapwood Index. (www.chapwoodindex.com)

The Index, which is updated and released twice a year, reports the 12-month price fluctuation of the 500 items on which Americans spend the majority of their after-tax dollars. It is a more precise measure of the cost of living than the government's Consumer Price Index (CPI), which showed a cost-of-living increase of less than 1 percent over the same time span.

The 9.9 percent increase exposes why middle-class Americans -- salaried workers who are given routine pay raises and retirees who depend on annual increases in their corporate pensions and Social Security payments -- cannot maintain their standard of living and lifestyle, says Ed Butowsky, founder of the Chapwood Index.

He says middle-class Americans' income increases are tied to the CPI, which has been manipulated over the years, and that people looking for a measure of the true increase in the cost of living should use the Chapwood Index instead.

"Individual purchasing power is sinking in quicksand, and people are unable to maintain their current lifestyle," Butowsky says. "It is about time someone does something about this tragedy and stands up to explain why people are falling behind each year. This is why I created the Chapwood Index."

Butowsky says the Chapwood Index shows what the CPI tries to conceal: that the government keeps the CPI low to avoid spiraling debt increases, which are due primarily to corporate, income, sales and other tax increases at the local, state and federal levels, as well as rising insurance costs.

For more than a century, the CPI has purported to reflect the fluctuation in prices for a typical "basket of goods" in American cities. But it hasn't really done that for more than 30 years, and since salary and benefit increases are pegged to the CPI, the middle class has seen its purchasing power decline dramatically over the last three decades. This, in turn, has forced more and more people to seek entitlements when their savings are gone. And this trend will continue as long as pay raises and benefit increases are tied to a false CPI, Butowsky says.

"Every American knows that the CPI released by the government has been manipulated to show a lower cost of living increase in order to reduce government outlays," he says. "It's a joke that people blindly accept these government numbers. I started the Chapwood Index to draw attention to this devastating and often cataclysmic but blindly accepted statistic.

"People must focus on having their salaries and portfolios increase over and above the combination of the government's reported CPI and their personal tax rate. I am tired of observing people committing financial suicide by using a flawed statistic that is universally known to be inaccurate as a benchmark for maintaining a constant standard of living."

Butowsky says the Chapwood Index forces middle-class Americans to recognize that their purchasing power is constantly being destroyed because their income increases are pegged to the CPI.

As an example, the CPI rose .12 percent between July 1, 2014, and June 30, 2015. But in New York City, the Chapwood Index shows that the real cost of living increase was 10.9 percent. This means that a worker in New York who received a .12 percent pay raise pegged to the CPI could not come close to covering the actual increase in day-to-day expenses.

Things were even worse in San Jose, Calif., where the Chapwood Index shows an 11.4 percent rise in the cost of living. Even the city with the lowest increase, Colorado Springs, shows a 7.1 percent rise -- 6.9 percent higher than the CPI.

In New York, if you made $50,000 in 2011, the government's aggregate CPI of 8.36 percent indicates that you would need a raise of $4,180 to compensate for the increased cost of living. But the Chapwood Index shows that you would actually need a raise of $24,720 to meet the real increase.

If your salary increase were equal to the CPI, you would fall behind by almost $5,000 a year. So wherever you live, if you are a salaried employee, a Social Security recipient or a corporate pension recipient, and your income increase is tied to the CPI, your purchasing power deteriorates by an average of 9.9 percent each year.

"The unintended consequence of the CPI is that people who depend on Social Security and pensions don't get what they need," Butowsky says. "That number is so low that people are losing purchasing power. Our hope is that people will review the Index, see what the real cost of living is where they live and understand that it leaves them exposed. And, finally, that they will consult with a financial adviser to plan for the future."

Index Methodology:

In creating the Chapwood Index, Chapwood's research team compiled a list of over 4,000 products and services that consumers across the country spend money on in their daily lives. That list was narrowed down to the top 500 items that were used most frequently. Examples of items included in the Index: Starbucks coffee, Advil, gasoline, taxes, tolls, fast food restaurants, computer paper, toothpaste, oil changes, car washes, pizza, Internet service, Gymboree lessons, mobile phone service, cable TV, dry cleaning, movie tickets, hairspray, gym memberships, home repairs, piano lessons, laundry detergent, light bulbs, school supplies, parking meters, pet food, underwear and People magazine. Fluctuations in the true price for each of those items are carefully tracked and monitored, without any manipulation or biases, quarter-by-quarter and city-by-city, creating a weighted index based on price.

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