The Senate voted 51 to 48 yesterday to limit cost-of-living increases in federal workers' pensions to 4 percent a year through 1985 in order to reduce deficits by $5 billion over the next three years.
The vote puts the Republican-controlled Senate on a collision course with the Democratic House, which voted by a lopsided margin Tuesday to reject the proposed cap on cost-of-living adjustments (COLAs) for 3 million retired federal workers and their survivors.
The COLA question, one of the most controversial Congress faces as it struggles to cut the deficit as required by the budget resolution it passed earlier this summer, will have to be resolved in a House-Senate conference.
Yesterday's vote came only hours after the Senate approved a balanced-budget amendment to the Constitution. There were 21 senators who voted both for the amendment and against the $5 billion in deficit reductions that the COLA cap would provide by 1985.
They included Sens. Mark Andrews (R-N.D.), Lloyd Bentsen (D-Tex.), Quentin N. Burdick (D-N.D.), Robert C. Byrd (D-W.Va.), Howard W. Cannon (D-Nev.), Lawton Chiles (D-Fla.), Dennis DeConcini (D-Ariz.), Alan J. Dixon (D-Ill.), David Durenberger (R-Minn.), J. James Exon (D-Neb.), Paula Hawkins (D-Fla.), Howell Heflin (D-Ala.), Walter D. Huddleston (D-Ky.), John Melcher (D-Mont.), Larry Pressler (R-S.D.), David Pryor (D-Ark.), James Sasser (D-Tenn.), Arlen Specter (R-Pa.), Robert T. Stafford (R-Vt.), John W. Warner (R-Va.) and Edward Zorinsky (D-Neb.).
All other Washington-area senators except Harry F. Byrd Jr. (Ind.-Va.) joined Warner in voting against the COLA limitation. Byrd voted for it.
The COLA savings of $5 billion constitute nearly half of the $12.3 billion in three-year spending cuts that seven Senate committees proposed as their share of nearly $30 billion in spending reductions that both houses are considering to comply with the budget.
The Senate earlier approved about $17 billion in spending cuts proposed by its Finance Committee, largely from Medicare, Medicaid and welfare. The Senate is currently in conference with the House on these reductions in connection with the tax bill, which would add another $98.5 billion in deficit reductions over the next three years by raising business as well as consumer taxes.
Federal workers' pensions currently rise in line with the Consumer Price Index, without any limits. Under this formula, retirees received an 8.7 percent increase last March and would be entitled to an increase of more than 6 percent next March, according to congressional budget experts. A 4 percent cap would cost them about a third of this.
The budget also calls for no more than a 4 percent pay increase for the civilian government work force next year, but pay was not at issue in yesterday's vote.
In attempting to scuttle the 4 percent cap that had been proposed by the Senate Governmental Affairs Committee, Sen. Donald W. Riegle Jr. (D-Mich.) argued that the limit was inequitable in that only federal retirees were being forced to accept less than full cost-of-living increases. Largely for political reasons, Social Security, with 36 million recipients, was ruled off limits for budget cuts early in this election year, and so were several other inflation-indexed retirement programs.
Congress has "fastened onto the federal employes as a handy whipping boy or whipping girl," complained Sen. Paul S. Sarbanes (D-Md.).
The Senate will continue work on the bill today.
Meanwhile, Treasury Secretary Donald T. Regan declined to join Office of Management and Budget Director David A. Stockman in asserting that Congress must make further deep cuts in social spending next year, insisting only that Congress withstand pressure to increase spending beyond levels currently contemplated.
If Congress adheres to the budget targets it adopted earlier this summer, long-term interest rates should decline by two or three percentage points over the next year or so, contributing in a major way to economic recovery, Regan told the Senate Budget Committee.
But if Congress fails to implement the tax increases and spending cuts that the budget calls for to reduce deficits by nearly $130 billion by 1985, interest rates would probably start going back up again, he added.
Asked by reporters after the hearing if he disagreed with Stockman, Regan said he was "a little more cautious than he is," and added, "I want to see how much we do this year before we look at next year."