Budget deal could target federal pensions, Social Security, other benefits

Cuts to federal pensions, Social Security and other benefits could be on the table during negotiations on a longer term federal budget.

The Budget Conference Committee, created in the wake of the 16-day government shutdown, reportedly is considering major changes to a number of federal benefits programs as part of a deal to replace the across-the-board budget cuts known as sequestration.

These cuts could include:

  • Increasing federal employee retirement contributions. Proposals have been introduced that would increase contributions for current employees by between 1.2% and 5.5%. This means that employees under the Federal Employees Retirement System would go from paying 0.8% of salary to up to 6.3% of salary to their pensions. Employees under the Civil Service Retirement System would go from paying 7% of their salary to up to 12.5% of their salary to their pensions. This is a major tax increase on federal employees, who are already reeling from three years of frozen pay, six days of furloughs due to sequestration and continued fallout from the 16-day government shutdown.
  • Lowering cost-of-living increases for millions of Americans receiving Social Security and veterans benefits by switching to the chained CPI formula. If the chained CPI went into effect today, a senior aged 65 would receive $658 a year less in Social Security benefits when he or she is 75, and $1,100 a year less at age 85. Further, the average disabled veteran would lose tens of thousands of dollars in benefits over his or her lifetime.
  • Increasing premiums for more Medicare recipients. Currently, individuals earning $85,000 or above and couples earning $170,000 and above pay a substantially larger share of premiums for Medicare Part B (outpatient services including doctor visits and laboratory services) and Medicare Part D (prescription drugs). One proposal would raise these premiums even higher and expand them to incomes at or above $47,000 for individuals and $94,000 for couples. This change would result in these recipients paying between 40 percent and 90 percent for outpatient services under Part B, up from 25 percent currently.
  • Drastically cut funding for Medicaid and the Children’s Health Insurance Program (CHIP) by switching to a block grant formula. Instead of receiving a percentage of their actual Medicaid costs and a separate amount for CHIP expenses, states instead would receive a fixed dollar amount for both programs that would be adjusted annually for inflation and population increases. One estimate shows this would cut funding for both programs by 31 percent over the next decade. This would result in millions of recipients being dropped from the programs, fewer health services being covered, and fewer doctors and hospitals participating as their payments are slashed.

These programs are being vilified as the root of our country’s economic troubles, which couldn’t be further from the truth. Social Security, for instance, is not going broke as some would have you believe. According to the Social Security Administration, Social Security has a surplus today of $2.8 trillion and can pay out every benefit owed to every eligible person for the next 20 years.

Raising the payroll tax cap from its current threshold of $110,100 would allow Social Security to remain solvent for many more decades and would not have the devastating impact on lower-income recipients that switching to the chained CPI would have.

There are many other ways to trim our deficits and raise new revenue without targeting working families, the elderly, children, the sick and the poor. Raising taxes on the wealthiest 1% of Americans and closing tax loopholes that allow one out of four U.S. corporations to pay nothing in federal income taxes would do far more to balance the budget – without causing millions of senior citizens, working families, disabled veterans and children to suffer.

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