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After the election: Pay, benefits cuts likely

Nov. 12, 2012 - 07:25AM   |   Last Updated: Nov. 12, 2012 - 07:25AM  |  
With President Obama back in the White House for another term, attention in Washington is turning back to budget-cutting -- and that could include military pay and benefits.
With President Obama back in the White House for another term, attention in Washington is turning back to budget-cutting -- and that could include military pay and benefits. (Jewel Samad / AFP)
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An election that returned President Obama to the White House and left Democrats controlling the Senate and Republicans running the House could end up hurting your wallet and career.

With campaign rhetoric behind them and serious financial problems ahead if an agreement isn't reached to control spending, early discussions are underway for a potential deficit-reduction package that could include a $10 billion to $20 billion annual reduction in planned defense spending.

While that would be a far lighter hit than the threatened $55 billion per year reduction in military spending that would occur under sequestration if there is no deficit-reduction agreement, the new cuts in the defense top line still would be significant for two reasons:

• Even a reduction of $10 billion a year is big enough to represent real cuts after adjustment for inflation because the new reduction would come on top of a previous series of cuts that have already been approved.

• While Obama has spared military personnel money if sequestration occurs next year, there is no indication that personnel would be exempt from cuts under a new budget deal — and there is good reason to think personnel funding would actually be put on the chopping block.

Pushing benefits overhauls

Congressional aides working on the 2013 defense budget said the Defense Department already has been pushing budget-cutting ideas, such as smaller annual military pay raises that do not keep pace with private-sector wage growth, reduced military retirement benefits and higher out-of-pocket health care fees for military retirees.

DoD is also seeking cuts in the number of people on active duty and calling for two additional rounds of base closings.

More defense cuts are likely to intensify talk about cutting personnel costs, especially basic pay increases and retiree-related expenses, aides said.

Pay and benefits cuts — under discussion for years by DoD and many think tanks but resisted by Congress — obviously could hurt the wallets of service members and retirees. Cuts in personnel levels could involuntarily force out people who were not planning to leave any time soon — at a time when many sectors of the economy are still struggling.

In a postelection report, the nonpartisan Congressional Budget Office provided lawmakers examples of benefits cuts that were similar to DoD's proposals. They include capping future raises in basic pay, charging a fee for Medicare-eligible military retirees and their families to have Tricare for Life coverage, raising pharmacy co-pays and limiting Tricare coverage for working-age retirees who can get employer-provided health coverage.

The Nov. 8 report, "Choices for Deficit Reduction," doesn't single out military benefits for cuts. For example, it also proposes making people work longer before receiving Social Security and changing how Social Security benefits are calculated as other ways of saving money.

If there's a sliver of good news, it's that defense officials are not talking about capping military raises until 2015, and reform of military retired pay is unlikely to apply to current service members, congressional aides said.

However, an increase in out-of-pocket health care costs is one initiative DoD wants to implement as soon as possible, although it appears unlikely any specific proposal could be approved that would take effect before Oct. 1 and would most likely be delayed even longer because of expected resistance from military and veterans groups, congressional aides said.

Republican presidential challenger Mitt Romney had campaigned on a promise that he would not only prevent sequestration but also "roll back" the $487 billion in defense cuts previously proposed by the Obama administration and endorsed by Congress as part of the 2011 Budget Control Act.

Romney also promised not just to stop ongoing cuts in personnel of about 200,000 people but also to increase the size of the force by an additional 100,000 people, although he never explained exactly how he would pay for those defense plans.

Time to negotiate

Bipartisan agreement is required to get anything done, especially after an election that gave no party a clear upper hand.

Obama was re-elected with a strong showing in the Electoral College but with only a narrow 50.4-percent-to-48.1-percent edge over Romney in the popular vote.

Democrats gained seats in the House, but Republicans remain in control, with 233 representatives in a body where 218 votes constitutes a majority.

In the Senate, Democrats increased their slim majority but still lack the 60 votes required to overcome procedural hurdles — mainly filibusters — that can block consideration and passage of legislation or amendments.

Before the November elections, lawmakers resisted discussions about a broad agreement on deficit and spending, and instead engaged in a blame game of who was responsible for the nation's fiscal problems and the risk of the sequestration in January.

After the elections, however, Obama, House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., appeared ready to negotiate — although they are still far apart on details.

"The American people want us to work together. Republicans want us to work together. Democrats want us to work together. They want a balanced approach to everything, but especially the situation we have in dealing with this huge deficit," said Reid, who added that tax increases "are part of that."

Boehner indicated a willingness to consider reductions in defense spending, without providing details. Instead, he spoke of seeking a "balanced" approach to deficit reduction, making clear that does not mean "slashing national defense instead of making the common-sense spending cuts that are truly needed."

Obama spoke with Boehner and Reid on Nov. 7, trying to work out arrangements for budget talks.

Boehner said a long-term agreement by the end of the calendar year isn't possible, and is proposing some kind of temporary budget agreement to avoid sequestration in January that would allow time to work on a longer-term package next year.

Reid and Obama have been talking about moving quickly to forge a bigger agreement now.

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