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Federal Eye
Posted at 12:04 PM ET, 12/12/2011

What the Republican payroll tax plan would mean for federal workers


House Majority Leader Eric Cantor (R-Va.), left, and House Speaker John A. Boehner (R-Ohio) announced a plan to extend the payroll tax reduction. (Joshua Roberts - BLOOMBERG)

Updated 12:04 p.m. EST: Talk about timing: Just as most federal employees were leaving the office Friday afternoon, House Republicans announced the details of a plan to extend the payroll tax reduction that would force feds to face another year of frozen pay and to increase contributions toward their retirements.

Eye Opener

The broad package would extend the tax cut for another year. It also would extend unemployment insurance and reimbursements for doctors who see Medicare patients, and would move to accelerate a decision by the Obama administration on the Keystone XL oil-sands pipeline. Although the plan’s provisions regarding Keystone may receive much of the attention this week, federal workers and their unions will focus on details published toward the end of the 24-page plan.

Under the plan, federal workers would face a one-year extension of the current two-year pay freeze, meaning no raise until January 2014 at the earliest, and a 1.5 percent increase in employee pension contributions that would be phased in over three years starting in 2013.

For those who retire in 2013 or later, the government would eliminate the Social Security supplement for workers who retire before 62, unless the employee is in a position with a mandatory retirement age (including law enforcement personnel, for example).

The bill also would create new retirement rules for federal workers hired beginning in January 2013 who have less than five years of previous government service. Those employees would be forced to pay 3.2 percent more of their salaries toward their retirement savings starting in 2013 (although they would not be subject to a further increase as higher contributions are phased in for everyone else). Their retirement benefits would be based on their highest five years of compensation, rather than the highest three, with the net effect that those employees would be paying more for less.

Federal employees with more than five years of experience would be exempt from those changes, meaning that part of the proposal would affect mostly younger, less-experienced workers.

Extending the federal pay freeze would save taxpayers about $26.2 billion over 10 years, according to Congressional Budget Office estimates. The retirement changes would save about $36.7 billion over a decade, CBO said.

There’s little chance of the proposals earning enough support in the Senate — although Senate Minority Leader Mitch McConnell (R-Ky.) said Sunday that he expects Democrats to back it — and regardless, federal union leaders promised to fight the plans.

Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association, said the changes would add a new 3 percent payroll tax on federal worker salaries. Singling out middle-class federal employees “clearly does not belong in the current debate about extending the payroll tax holiday for middle-class workers,” he added. “For leaders in Congress to pursue it further is not the right or rational way to help America’s middle class and economy recover.”

In a similar vein, Colleen M. Kelley, president of the National Treasury Employees Union, said it is “outrageous” that Republicans “would single out hard-working middle-class federal employees to bear such a disproportionate burden while continuing to oppose even the smallest sacrifice by the most affluent.”

John Gage, president of the American Federation of Government Employees, added: “The American people should be outraged.”

The House GOP plan is “even more draconian” than the Senate Republican proposal, Gage said, adding that Republicans are “on an unrelenting quest to push through their anti-worker political agenda.”

Despite disagreements between Republicans and Democrats, McConnell said Sunday that Congress will not let the payroll tax cut expire at year’s end.

“Obviously, we’ll reach an agreement,” he said.

In the meantime, federal workers would be wise to watch the debate — and their wallets — closely.

Staff writer Eric Yoder contributed to this report.

Follow Ed O’Keefe on Twitter: @edatpost

For further reading:

House GOP formally announces payroll tax package

GOP payroll tax plan will get ‘significant’ Democratic support, McConnell says

McCaskill-led earmark probe finds $834 million in requests

For more, visit PostPolitics and The Fed Page.

This post has been updated since it was first published.

By  |  12:04 PM ET, 12/12/2011

Categories:  Eye Opener, Workplace Issues, Budget

 
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