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Fiscal cliff negotiators take aim at COLA adjustments, sources say

Dec. 12, 2012 - 05:38PM   |  
By STEPHEN LOSEY   |   Comments
Rep. Chris Van Hollen, D-Md., said he hasn't heard about any proposals specifically targeting federal employees being discussed during President Obama's fiscal cliff negotiations with House Speaker John Boehner.
Rep. Chris Van Hollen, D-Md., said he hasn’t heard about any proposals specifically targeting federal employees being discussed during President Obama’s fiscal cliff negotiations with House Speaker John Boehner. (Brendan Hoffman / Getty Images)

Federal employee groups fear that a change in the way the government sets cost-of-living adjustments is growing increasingly likely to be part of a deal to avoid sequestration.

The new method of determining the Consumer Price Index, called the chained CPI, would lower the COLAs for federal retirees’ pensions, as well as Social Security benefits, military pensions, and other indexed portions of the government’s budget. The change would at first only mean a few hundred dollars less per year for federal retirees. But it would compound over the years and decades until eventually, retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.

The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements.

However, the switch could save the government more than $290 billion over the next decade, according to a paper released Tuesday by the Moment of Truth Project, which is co-chaired by former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson. Simpson and Bowles also pushed for a transition to the chained CPI in 2010 when they headed the White House’s deficit reduction commission.

Jessica Klement, legislative representative for the National Active and Retired Federal Employees Association, told reporters during a conference call that there is more talk on Capitol Hill recently about adopting the chained CPI method of calculating inflation.

“This is getting a lot of traction in deficit reduction talks just because of the amount of money it saves,” Klement said.

But Klement and other representatives of federal employees also noted that the chained CPI is somewhat confusing and hard to explain, which may mute protests from the public if the government adopts it.

“This is an arcane way to raise taxes and cut benefits and raise a lot of revenue,” said Bruce Moyer, chair of the Federal-Postal Coalition, an organization of more than two dozen federal union, management and retiree groups. The chained CPI would also mean tax bracket thresholds would increase more slowly, which the Moment of Truth Project said would alone generate an extra $62 billion nationwide over a decade.

Federal employee groups object to the chained CPI, and note that federal employees have already contributed $103 billion to deficit reduction over the next decade. The current pay freeze has already cost feds $60 billion, the coalition said, and a reduced and delayed raise next year will cost them $28 billion more.

In addition, an increase to pension contributions for newly hired federal employees is set to take effect next year and will cost another $15 billion, the coalition said.

Feds are the only group of Americans that so far has been asked to sacrifice for deficit reduction, the group said, and the government should raise taxes on millionaires and billionaires before asking middle-class government employees to contribute more.

Rep. Chris Van Hollen, D-Md., told reporters during the call that he hasn’t heard about any proposals specifically targeting federal employees being discussed during President Obama’s fiscal cliff negotiations with House Speaker John Boehner. But Van Hollen expects Republicans to push steep increases to current federal employees’ pension contributions, which would likely amount to a 5 percent pay cut.

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