President Obama on Monday announced a sweeping long-term deficit reduction plan that includes a proposal calling on federal employees to shoulder more of the burden of funding their retirement plans.
Obama's plan, delivered to the bipartisan congressional Joint Select Committee on Deficit Reduction charged with hacking the federal deficit by $1.5 trillion over the next 10 years, would more than double that target for deficit reduction.
Under the plan, federal workers would see their retirement contributions jump by 1.2% in the form of three annual incremental increases of 0.4% beginning in fiscal 2013. It would also eliminate the annuity supplement to the Federal Employees Retirement System for new employees, offset by additional agency funding for unfunded liabilities.
Taken together, those proposals would amount to a deficit reduction of $21 billion over 10 years. Administration officials said they do not expect that the proposal would hinder the ability of government agencies to recruit top talent or provide services.
The plan drew a swift condemnation from the American Federation of Government Employees (AFGE), the largest union representing federal workers.
"Asking federal employees to accept additional cuts to their take-home pay is unfair, especially at a time when citizens are demanding more services from their government," AFGE National President John Gage said in a statement. "This is a double whammy for federal employees, who are facing the same economic hardships as most other Americans. Enough is enough."
The group noted that Obama has already frozen salaries for federal workers this year and next, and that hiring levels have slackened significantly amid deep cuts to agency budgets.
The retirement target comes as part of nearly $580 billion in proposed cuts to so-called mandatory federal programs, which range from employee benefits to agricultural subsidies, as well as the federal health programs Medicare and Medicaid.
The overall plan is a roughly even balance of spending cuts and revenue increases that the White House said would amount to net savings of more than $3 trillion over the next decade.
The revenue increases in the plan are presented as the funding mechanism for the jobs bill that Obama presented to Congress earlier this month, spanning a wide range of reforms to the tax code to close loopholes, allowing the Bush-era tax cuts to expire for the highest earners, and hewing to the so-called "Buffett rule" that would ensure that people who earn more than $1 million a year do not pay a lower share of their income in taxes than members of the middle class. Berkshire Hathaway boss Warren Buffett has said it is unfair that his secretary pays income tax at a higher rate than he does.
The lion's share of the spending cuts come in the form of $1 trillion in projected savings from drawing down the wars in Iraq and Afghanistan.
Obama also proposed implementing token annual fees for retired military personnel to cover the costs of the TRICARE gap insurance that covers out-of-pocket medical expenses that beneficiaries incur from the Medicare coverage that takes effect as the first payer when they turn 65.
Jack Lew, the director of the White House Office of Management and Budget, said the proposal only amounted to "modest changes to federal civilian worker retirement and health benefits for military retirees."
But that message didn't resonate with the AFGE, which said that the "[retirement] proposal amounts to a $21 billion tax increase on federal employees," arguing that such a move would violate Obama's pledge not to raise taxes on families earning $250,000 a year or less.
A GS-9 Step 1 worker in the Rest of U.S. pay area earning roughly $47,500 a year would see an effective pay cut of $570, the group noted.
"It's safe to say that we will doing what we can to get this proposal dropped from any legislation that Congress passes," said AFGE spokesman Tim Kauffman. "We will be making the case that federal employees have already sacrificed enough and it's not fair to ask them to shoulder an additional financial burden."
Obama's proposal, particularly the calls for tax increases on the wealthiest Americans, sets the stage for a bitter fight with congressional Republicans, who wasted no time blasting the plan. Obama said he would veto any bill that would cut Medicare benefits without raising taxes on large corporations and the wealthy.
Shortly after Obama unveiled his proposal, Senate Majority Leader Mitch McConnell (R-Ky.) issued a statement decrying the plan and signaling that it will encounter entrenched GOP opposition on Capitol Hill.
"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth -- or even meaningful deficit reduction," McConnell said. "The good news is that the Joint Committee is taking this issue far more seriously than the White House."
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