Among the chief targets of President Reagan's proposed spending cuts are programs whose outlays, by law, automatically increase whenever prices or wages rise.
In the spending plan that he presented to his Cabinet on Wednesday, Reagan called for a one-year freeze on automatic cost-of-living adjustments for federal retirees and on all indexed benefit programs except Social Security. Reagan has not yet decided what to do about military pay or pensions.
The concept of "indexing" began in 1962, when Congress decreed that civil service retirement benefits should be increased twice a year to match increases in the Consumer Price Index (these have since been scaled back to one a year). In 1963, similar increases were approved for military retirees.
In 1972, Congress approved automatic annual increases in Social Security and Supplemental Security Income benefits based on the CPI.
Similar increases for veterans' pensions went into effect in 1979. (However, service-connected disability benefits, which represent nearly three-quarters of payments to veterans, do not increase automatically.)
Automatic annual adjustments in the pay of federal and military employes went into effect in 1968. These increases are based on pay increases in the private sector, unless the president proposes alternative figures, as generally has been the case in recent years.
Congress also has extended the "indexing" principle to many non-cash benefit programs.
For example, food stamp benefits are based on a diet plan and, as food prices go up, the value of stamps that beneficiaries receive automatically increases so that they can continue to eat that diet.
Similarly, in the Medicare program, the maximum payments to doctors and hospitals are raised to cover cost inflation, though the precise increase sometimes is not spelled out and must be set by program administrators. Moreover, premiums for doctors' insurance under Medicare are also raised annually.
Indexing has become so popular that the principle has been extended to the federal income tax system.
In 1981, Congress agreed that, starting in 1985, the personal exemption, standard deduction and tax rate brackets should be "indexed" each year so that a person whose wages merely kept even with inflation would not automatically climb into a higher tax bracket.
According to calculations by the Congressional Budget Office, about 29 percent of the federal budget is directly indexed. Experts say another 13 percent to 15 percent is subject to semiautomatic or indirect types of indexing.
From 1945 to 1962, before indexing was instituted, Congress approved increases every few years to help keep benefits in step with inflation. But there were no automatic increases.
Much support for indexing in those years came from congressional conservatives, including many Republicans who said the haphazard increases in retirement and benefit payments were being abused and politicized by the Democrats who controlled Congress.
President Richard M. Nixon proposed automatic annual indexing of Social Security benefits to the CPI in his Jan. 24, 1972, budget message.
Congress approved the change that year.