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Congressional Budget Office says federal pay cuts could save billions

The government could save about $280 billion by 2023 by cutting the size of the federal workforce, spending less on pay raises and pensions, and adopting a more conservative inflation gauge to calculate cost-of-living adjustments for civilian retirees and other federal benefit program participants, the Congressional Budget Office said.

Whether reducing the federal payroll and COLAs will result in savings to business and individual taxpayers or whether the savings are merely transferred into another federal spending account remains to be seen. Both federal and state public sectors are experiencing the same cost-cutting moves private business has been instituting since 2008.

The Hill reports that a House-Senate conference committee is looking to avoid another round of sequester-related budget cuts in 2014 as well as reducing future deficits. Congressional Republicans and the Obama administration endorse replacing the current Consumer Price Index with the “chained CPI” to set COLAs for federal retirees, Social Security recipients and other federal program beneficiaries, The Hill reported.

A chained CPI calculates inflation rates differently. It’s generally smaller than the current CPI. A 0.25 percentage point to 0.3 percentage point difference could save about $162 billion over 10 years, the CBO estimated. The Hill said many economists agree that the chained CPI is a more accurate measure of inflation partly because it accounts for consumers’ tendency to switch to cheaper goods as the prices of other items rise.

Critics counter that the chained CPI doesn’t adequately account for health care costs by older people. Some groups have protested a chained CPI outside the White House.

Other deficit-cutting options targeting federal employees include allowing some agencies to replace only one of every three workers who leave, reducing annual across-the-board pay raises that federal workers are supposed to receive, but which are now frozen, increase the employee contribution rate to their pension plans by another 1.2 percent of their salaries, and use a worker’s five-highest earning years instead of the current three highest-earning years to calculate their pensions.

-Dana Beyerle

About Dana Beyerle

Dana Beyerle
Director of Communications
(334) 240-8768 | Fax: (334) 241-5984
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