President Reagan's proposed 1986 budget recommends the deepest cuts in pay and retirement benefits for federal employes since the Great Depression, and the elimination of at least 35,000 civilian jobs in the next two years.
The government's 1 million civilian employes, who received a 3.5 percent pay raise last month, would get a 5 percent pay cut next January -- saving the government $3 billion and costing the workers, on average, about $1,250 a year. The nation's 2 million-member military would receive a 3 percent raise in July, but would have its pay frozen in 1986.
The major job reductions -- led by 10,186 at the Agriculture Department, 3,873 at the Health and Human Services Department and 3,646 at the Small Business Administration (which would be eliminated) -- would come mostly through attrition by 1987, but would include an unspecified number of layoffs.
The Reagan administration, citing what it calls "a growing perception that government salaries are relatively high . . . and that benefit programs are liberal and expensive," is proposing cuts in "the expensive, overly generous retirement system" for its 3 million retirees and its future pensioners.
"Overall, there has never been a worse budget for federal workers," said Donald M. MacIntyre, vice president of the American Federation of Government Employees, the largest federal-workers union. He predicted that it would prompt the largest defection of federal workers to the private sector, a contention that the Office of Personnel Management disputes.
The proposed pay cut is expected to encounter a tough fight in Congress. Republican members last year suggested that the president and legislators could lobby more effectively for such a proposal if they offered to take a 10 percent pay cut themselves. But the Reagan budget includes no such proposal.
Sensitive to criticism about cuts in retirement benefits, the administration says in its budget summary that the change "doesn't constitute breaking a contract" because the retirement system has undergone numerous changes since its establishment in 1920. Many of the new changes would undo, in effect, increases granted in the last 15 years.
The proposed benefit cuts, estimated to save $4.3 billion in three years, include:
* Raising the retirement age for full benefits from 55 to 65. Employes with 30 years of service could still retire at 55, but would be penalized 5 percent for each retirement year before age 65. Those retiring at 55, for instance, would be penalized 10 years, or 50 percent of their benefits. The new formula would be phased in over 10 years; workers now 55 would not be affected. Savings are projected to reach $18 million in 1986, rising to $381 million by 1990.
* Reducing cost-of-living adjustments (COLAs). The annual COLA for retirees scheduled for payment next January would be eliminated, and the formula for computing future COLAs would be reduced, starting in 1987. Instead of being linked automatically to the Consumer Price Index, the COLA would equal either the CPI or the general federal pay increase, whichever was lower. Savings are estimated to reach $695 million in 1986 and nearly $2.1 billion by 1990.
* Cutting COLA payments to any retiree receiving more than $10,000 annual benefits. For any portion of benefits exceeding $10,000, the retiree would receive 55 percent of the full COLA, saving the government $91 million in 1986 and $635 million a year by 1990.
* Lowering the pay base on which pensions are computed. Instead of averaging the employe's three highest years of pay to compute pension, the highest five years would be used. The government also would exclude unused sick leave from the computation. An estimated savings of $1 million in 1986 would increase to a projected $86 million by 1990.
* Cutting health expenditures. To curb costs in the Federal Employee Health Benefit program, the world's largest multiple-choice plan, the government contribution no longer would be based on the average premium of the six largest health insurance plans. Instead, increases in premium payments would be linked to the presumably lower overall inflation rate. The government currently pays about 60 percent of premium cost, but the result of this change, which would be part of a new health "voucher" system, is not detailed.
The administration said it is concerned about the cost of the federal retirement system, which has grown from $2.8 billion in 1970 to nearly $25 billion for 1986, an outlay exceeding the combined annual budgets of the departments of Justice, Interior, State and Commerce, the Environmental Protection Agency and the entire legislative and judicial branches.
The proposed cuts in the work force by 1987 for other agencies include, at the Veterans Administration, 3,088 jobs; Interior, 2,496; Transportation, 1,109; Treasury, 925; Housing and Urban Development, 736; Labor, Energy and the General Services Administration, roughly 500 each, and Education, 261.