WHILE DUTIFULLY plowing through th cut-and-paste version of the administration's substitute budget reconciliation package that the House voted to adopt last Friday (with all the amends-by-striking-out and inserts-in-lieu-of-it doesn't make such good reading), we came upon a rewriting of the law governing compensation to federal workers who are injuried on the job. We trust that, by now, no one will be surprised to find a 36-page piece of major legislation tucked away -- without so much as a word of debate -- in the recesses of the budget package. This legislation, however, raises an issue with such broad application to all worker protection programs -- and deals with it so crudely -- that we thought it deserved some attention.
Workers compensation for federal employees has been the object of criticism for many years. Among its more salient defects is that many workers may receive disability compensation benefits that make them better off than when they were working. This is because benefits, ranging up to 75 percent of previous before-tax wages, are tax-free and fully adjusted for inflation. As a result, there is little or no incentive for some beneficiaries to return to work even if they could do so.
The budget-bill provisions attempt to deal with this situation in a way that is likely to create more problems than it solves. To keep benefits from exceeding previous take-home pay, compensation would now be limited to 80 percent -- of previous "spendable income" -- that is, wages less withheld taxes. That sounds all right until you think about how you would compute that in a fair way. The amount of taxes withheld from a worker's paycheck may depend on may things that relate only indirectly or not at all to the appropriate amount of compensation for injury. Do other family members work, and if so, which on claims the personal exemptions for the family? Are there other sources if income, such as interest received from savings, or other deductions, such as interest paid on debt? Some average adjustment might be made for these factors, but circumstances might change after the injury, and further adjustment would be in order. What if another family member quits work or leaves home? If tax rates are reduced, shouldn't the injured worker get a higher benefit since his take-home pay would be higher if he were still working? A potential administrative nightmare if ever there was one.
The right way to keep injury benefits from exceeding take-home pay is very simple. Make the benefits taxable. If benefits after tax seem too low on average, raise the benefits. This is a rule that should apply to all kinds of worker protection benefits -- unemployment, disability or retirement. Income, after all, is income. If the tax schedule, with all its adjustments for family needs and total resources, is fair as applied to earnings, then it is equally fair when applied to other forms of compensation. If the family's circumstances change, it tax liability will change automatically to account for that.
An overhaul of federal compensation should not be buried in a budget bill that almost nobody read before it was passed. The conferees from the Senate -- where no such measure was included -- should insist on its delection. When the matter is taken up separately, as it should be, the tax provisions should be high on the list of needed improvements.