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House Changes to Military Pensions Would Violate Key Principle of Recent Budget Deal

The House voted yesterday to undo the military pension savings in December’s Murray-Ryan budget deal and offset the cost by extending the sequestration budget cuts for mandatory programs by one year, from 2023 to 2024.   That was a mistake.  The bill upends a key feature of the agreement, which Congress adopted with a large, bipartisan vote — that policymakers should not pay for higher defense funding by cutting domestic programs.

The budget agreement trimmed annual cost-of-living adjustments (COLAs) by one percentage point for military retirees under age 62.  Once they reach 62, they’ll receive their full benefits, including a catch-up for the years of lower COLAs.  Census data show that over three-quarters of those affected are working in second careers and that nearly 60 percent of them are in the top fifth of the income distribution.

The omnibus appropriations bill that Congress approved last month exempted disabled retirees and survivors under age 62 from the planned cut.  That’s appropriate because they’re less able to work than others who retire early from the military.  This change would also align military pensions more closely with federal civilian retirement, which pays no COLAs before age 62 except to disabled retirees, while retaining most of the provision’s savings.

The new House-passed bill, in contrast, exempts current members of the armed forces and current military retirees from the COLA reduction, which would only apply to those who join the military starting this year.

This “grandfathering” effectively eliminates the ten-year savings that was integral to the Murray-Ryan deal’s careful balance.  The military pension provision helped pay for boosting defense funding above sequestration levels in 2014 and 2015.  These savings, plus higher user fees, covered the cost of the defense increase in the budget deal, upholding the key principle that Congress should not cut domestic programs to pay for higher defense funding.

The House bill violates that principle by replacing the military pension savings with a continuation of the sequestration cuts of mandatory programs, virtually all of which are domestic — such as Medicare, the Commodity Credit Corporation, and the Social Services Block Grant.  That sends the wrong signal, potentially opening the door to further cuts in domestic programs as a way to shift more money to the Pentagon.

The budget deal’s COLA changes to military pensions don’t take effect until the end of 2015, so Congress has ample time to consider alternatives.  Furthermore, a congressionally established commission is reviewing military compensation and retirement issues and is expected to issue recommendations in February 2015, so Congress could consider these recommendations and then make decisions on changes in military pensions on a more informed basis.  That’s the appropriate way to consider changes in this area, as the Pentagon and the Joint Chiefs of Staff have pointed out.

Joel Friedman
Vicepresidente Sénior de Política Fiscal Federal