Cuts in federal pay and benefits are among deficit reduction possibilities

CBO analysis looks at potential savings related to increasing feds’ health care costs, reducing pay.

President Obama and Congress extended the current two-year federal civilian pay freeze until at least March 27, 2013, when the continuing resolution expires. It’s estimated that the freeze will save the government more than $60 billion.

Reducing certain pay and benefits for the federal workforce could cut the deficit by $38 billion in 2020, according to a new analysis of the country’s fiscal crisis from the Congressional Budget Office.

Lawmakers have a range of options for cutting spending and increasing revenues to rein in the government’s current trillion-dollar deficit, CBO said. And those choices could include increasing health care costs for military retirees, decreasing the government’s contribution to the Federal Employees Health Benefits Program, capping increases in military basic pay and reducing the annual across-the-board pay raise for feds. CBO estimated those changes could reduce the deficit by a total of $38 billion in 2020. Of the options affecting feds included in the report, limiting the TRICARE benefit for military retirees and their dependents would save the most money, at approximately $14 billion in 2020, according to the nonpartisan CBO.

The estimated savings from those changes and from adjustments to other mandatory and discretionary programs governmentwide is a drop in the bucket, however, compared to the real source of Uncle Sam’s burgeoning budget problem: the escalating cost of entitlement programs like Medicare, Medicaid and Social Security. “To put the budget on a path that is more likely to be sustainable than if current policies were continued, lawmakers will need to adopt a combination of policies that require people to pay more for their government, accept less in government benefits and services, or both,” the CBO report stated.

The specific possibilities related to federal pay and benefits and their estimated potential deficit reduction in 2020 outlined in CBO’s analysis are:

  • Adopt a voucher plan and slow the growth of federal contributions for FEHBP ($5 billion)
  • Introduce minimum out-of-pocket requirements under TRICARE-for-Life ($5 billion)
  • Limit the TRICARE benefit for military retirees and their dependents ($14 billion)
  • Reduce the across-the-board adjustment for federal Defense Department civilian employees’ pay ($4 billion)
  • Increase cost-sharing for pharmaceuticals under TRICARE ($2 billion)
  • Cap increases in military pay ($2 billion)
  • Reduce the across-the-board adjustment for nondefense federal civilian employees’ pay ($6 billion)

CBO presented a range of possibilities for reducing the deficit in the analysis released Thursday. Congress returns for a lame-duck session next week; negotiations and political posturing on both sides of the aisle for dealing with the fiscal cliff already have begun. The government is facing what officials refer to as the fiscal cliff at the end of 2012 and the beginning of 2013 -- a range of expiring tax cuts, sequestration and another round of discussions over raising the debt ceiling.

In the wake of President Obama’s reelection Tuesday, Republicans and Democrats have softened their budget rhetoric, pledging to work together to avert a fiscal crisis that could send the economy back into a recession. Obama on Friday invited congressional leaders to the White House next week to discuss the impending fiscal cliff.

Federal debt held by the public currently exceeds 70 percent of the country’s gross domestic product. If Congress halts the looming across-the-board spending cuts known as sequestration, extends the various current tax breaks and doesn’t come up with an alternative fiscal plan, that figure jumps to 90 percent during the next decade and will continue to increase rapidly after that, according to CBO.

Federal employee unions have vowed to fight any budget deal that would target federal pay and benefits. “The pretense of postelection conciliation is nothing more than an attempt to revive the widely repudiated recommendations of Morgan Stanley Director Erskine Bowles and former Republican Sen. Alan Simpson, along with many of the worst elements of Rep. Paul Ryan’s infamous budget,” J. David Cox, president of the American Federation of Government Employees, said in a statement on Friday. “Their so-called ‘grand bargain’ would be an unmitigated disaster for all middle-class and working-class Americans, including the men and women who make up the federal workforce."