Speaking at the White House yesterday, President Obama proposed a two-year pay freeze for roughly 2 million civilian federal workers (this excludes military personnel). In his remarks, he said that a pay freeze would save $2 billion over the rest of the fiscal year and $28 billion total over the next five years. It seems that President Obama took to heart what we wrote back in March, when we first called attention to overly generous federal pay. To be clear, we called for an outright 10% pay cut. But a freeze is still a major step in the right direction.
This move is in stark contrast to big spending initiatives of the President's first two years in office. Elections have consequences, and a 63-seat net gain in the House by Republicans in the mid-terms, has forced the President to follow much more fiscally conservative policies. We applaud this move because, 1) it is long overdue, 2) it is good policy and 3) it shows the President is trying to become more fiscally conservative. The fact that he announced this proposal before his meeting with Republican leaders today suggests that the White House has begun the "triangulation" phase of its politics – much like President Clinton did back in 1995 when faced with a similar predicament.
The response to our piece last March was so strong – tea partiers loved it and federal workers hated it – we followed up with a second piece to answer our critics. Essentially, we argued that if the federal government was truly serious about the deficit, it would cut federal wages. At the time, President Obama had proposed a 2% pay increase for federal workers in the 2010 budget. But with yesterday's speech, he seems to have changed his mind and now sees it more our way.
Freezing federal wages will help slow the growth of the federal government over the next few years. Today, total compensation for federal workers averages twice that of the private sector. This is unacceptable and is proof that the government has become too big and bloated, but this federal pay freeze is only part of the solution. It will be important to follow this move up with a two or three year extension of all current tax rates and a serious effort to cut federal spending. Canada was able to cut its federal spending as a share of GDP from 53% to 39% between 1992 and 2008. Much spending in the US is done at the state level, but it should be a goal of our elected leaders to cut federal spending in the US back to 18% or so of GDP, rather than its current level of 24%. The pay freeze is a good first step...we hope to see more.
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Posted on Tuesday, November 30, 2010 @ 12:07 PM
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