4 Points to Consider About Trump's Federal Pay Decision

Fred Lucas / August 31, 2018

President Donald Trump announced he’s not granting the usual 2.1 percent pay hike for federal employees, prompting staunch opposition from many Democratic lawmakers.

It’s the latest move by the Trump administration to try to reign in excessive compensation packages for federal employees, after the president signed three executive orders in May.

"Specifically, I have determined that for 2019, both across?the?board pay increases and locality pay increases will be set at zero," Trump’s letter notifying Congress said Thursday. "These alternative pay plan decisions will not materially affect our ability to attract and retain a well-qualified federal workforce."

Here’s a look at what the pay freeze could mean.

1. Fiscal Impact

In his letter to Congress Thursday, Trump asserted the pay hikes would not be responsible at this time.

I view the increases that would otherwise take effect as inappropriate.

Under current law, locality pay increases averaging 25.70 percent, costing $25 billion, would go into effect in January 2019, in addition to a 2.1 percent across-the-board increase for the base general schedule. We must maintain efforts to put our nation on a fiscally sustainable course, and federal agency budgets cannot sustain such increases.

However, the impact may be negligible, said Rachel Greszler, a research fellow in economics, budget and entitlements with The Heritage Foundation.

"Basically, it’s not the most efficient reduction in spending or excessive pay, but it’s all the administration can do on their own," Greszler told The Daily Signal. "And pay increases shouldn’t be automatic."

2. Current Federal Compensation

In recent years, the Congressional Budget Office, and conservative think tanks The Heritage Foundation and the American Enterprise Institute, all produced reports finding federal compensation packages far outpace the private sector

Further, the government watchdog group OpenTheBooks.com found that one in five of employees at the 78 largest federal agencies has a salary that is six figures. Another 30,000 rank-and-file career government employees earn more than any governor.

A 2017 CBO report estimated taxpayers compensate federal workers with 17 percent more than what similar employees–with comparable education, skills, and experience–earn in the private sector.

The Office of Management and Budget during the Obama administration estimated the federal government would spend $337 billion in 2017 on the civilian federal workforce.

Also, with seniority comes at least two pay hikes for some years under the current system. All federal employees generally get a cost-of-living adjustment that is not based on performance. Second, federal employees are paid for each "step increase" they move up in the system based on seniority, which provides a 3 percent hike.

Federal employees get a retirement contribution of between 15 to 18 percent of their pay, while private sector employees average 3 to 5 percent, according to a 2016 Heritage Foundation study. Federal employees also contribute significantly less to their retirement, as taxpayers fund the bulk of the pensions

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