Federal Pay Freeze Planned

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The Wall Street Journal
By: Jonathan Weisman & Damian Paletta
November 30, 2010

Obama Proposes Two-Year Raise Pause in Bid to Seize Agenda in Deficit Talks

WASHINGTON--President Barack Obama on Monday proposed a two-year salary freeze for all federal civilian employees, signaling an apparent willingness to reach toward Republicans ahead of negotiations on deficit-cutting that are likely to dominate Washington next year.

The freeze, which would require congressional approval, would affect about two million workers in 2011 and 2012 and save just $5 billion, a tiny fraction of the current $1.3 trillion annual budget deficit. The GOP has called for much bigger reductions in federal spending and has specifically targeted the federal work force.

But the gesture could have broader political ramifications. It was seen by members of both parties as a sign that Mr. Obama, in the wake of what he called his electoral "shellacking," might be willing to tack away from his liberal base in search of compromise with Republicans.

"Going forward, we're going to have to make some additional very tough decisions that this town has put off for a very long time," Mr. Obama said. "And that's what this upcoming week is really about. My hope is that, starting today, we can begin a bipartisan conversation about our future."

On Tuesday, the president will host the first bipartisan meeting of congressional leaders since the election, to try to reach a deal on the future of President George W. Bush's tax cuts, which expire at year's end. Also on Tuesday, the chairmen of the president's bipartisan commission on the federal debt will hold a press conference, a day before the panel's deadline to achieve consensus on a broad plan to tackle the nation's red ink.

Mr. Obama made it clear his gesture was supposed to kick off negotiations on deficit-cutting that would require sacrifices by both political parties. Republicans greeted his pay-freeze proposal warmly, though they claimed he was taking a page from their deficit-cutting plan. House Minority Leader John Boehner (R., Ohio), who will take over as House speaker next year, quickly one-upped the White House, calling for a hiring freeze to accompany the pay freeze.

"This is the kind of cooperation we were hoping for," said incoming House Budget Committee Chairman Paul Ryan (R., Wis.), a member of the president's deficit commission.

Liberal activists, labor leaders and some Democrats reacted harshly to the freeze proposal, accusing Mr. Obama of capitulating to Republican pressure and getting nothing in return. Rep. Chris Van Hollen of Maryland, who will lead Democrats on the House Budget Committee next year, condemned the plan for "reinforcing the myth...that America suffers from a federal government comprised of unproductive and overpaid civil servants."

.Pay and staffing levels for public employees have drawn new scrutiny in recent years as states and the federal government struggle with large budget deficits. On the state level, Gov. Chris Christie of New Jersey has cut pensions for future employees, and Gov. Mitch Daniels of Indiana has ended collective-bargaining rights. Both men are Republicans.

The Heritage Foundation, a conservative think tank, has said compensation for federal employees is 30% to 40% higher than for comparable jobs in the private sector. Federal employee unions call that assertion a "myth.''

The co-chairmen of Mr. Obama's deficit-cutting commission also took aim at federal employees, calling for a three-year freeze on compensation for civilian workers and a 10% reduction in the federal work force by 2020, which would eliminate 200,000 jobs. The pay freeze alone would save $42.3 billion over five years, the co-chairmen projected.

The White House said Mr. Obama's proposed freeze, though in effect for two years, would save $28 billion over five years and more than $60 billion over 10 years as the government pockets savings from a lower wage base for civilian federal workers.

Workers were scheduled to receive a 1.4% pay raise in 2011. With an average increase of 7.2% on health insurance premiums, many civilian workers would actually see their take-home pay fall. The freeze would not apply to Congress, which sets salaries for itself and its employees.

More broadly, the gesture suggested Mr. Obama's path forward as he faces a more-powerful Republican Party in Congress. The big setback that voters dealt to Democrats in the midterm election raised the question of whether Mr. Obama would tack to the center, as Bill Clinton did after the 1994 Republican "revolution," or stand his political ground, as Harry Truman did in 1946.

Mr. Obama has given several signals since the election that he is more likely to take his lead from Mr. Clinton. He has signaled flexibility on extending the Bush tax cuts for the wealthy, at least temporarily. Critics on the left now fear he has adopted the language of austerity, whereas they want federal "investments'' to help boost the economy.

"I am really ticked," said John Gage, national president of the American Federation of Government Employees, AFL-CIO, which represents roughly 600,000 federal employees. "I never expected that this administration would look at this problem and think the solution was cutting wages." He called the move a "panic" by the White House after the midterms, and said it was a "symbolic, political, public-relations stunt."

"It's an economic recession, and this is the time you want to be raising wages, not cutting wages," said John Irons, research and policy director at the Economic Policy Institute, a labor-backed think tank.

Some conservatives have been attacking the federal work force as overpaid, but Mr. Obama did not join in. He hailed those "who care for our veterans, scientists who search for better treatments and cures, men and women who care for our national parks and secure our borders and our skies."

Critics on the left say such sentiments underscore why Mr. Obama should be extracting concessions from Republican lawmakers before he makes moves that will anger his political base. They made similar arguments last March, when the president announced an expansion of offshore oil drilling before he had won any Republican commitments to back his climate-change plan.

Earlier this month, they complained when White House officials signaled they could accept a temporary extension of tax cuts for upper-income Americans if coupled with a permanent extension of middle-class tax cuts. Many Democrats wanted concessions from the GOP, such as an agreement to extend benefits to the long-term unemployed, before signing on to an agreement on extending the tax cuts.

Democrats in Congress have been moving to find ways to draw battle lines and sharpen the contrast with Republicans. House Speaker Nancy Pelosi (D., Calif.) is planning this week to call a floor vote on a bill to extend tax cuts only for families with incomes under $250,000.

In the Senate, some leading Democrats are taking a different tack. Sen. Charles Schumer (D., N.Y.), a member of the Democratic leadership, is trying to rally his party to a proposal that would extend tax cuts just to families with under $1 million in annual income--a threshold that he believes will make it easier to portray Republicans as friends of the super-wealthy.

The idea has been flatly rejected by leading Republicans, but it may come up in the bipartisan White House leadership meeting Tuesday. Many Democrats are hoping Mr. Obama comes out of the meeting offering a clearer sense of direction for the party as it heads into the tax-cut endgame. But White House officials have been cold to the Schumer idea, saying it confuses the message Mr. Obama has been making since the 2008 campaign and would raise less money than a $250,000 cutoff.

--Janet Hook contributed to this article.
Write to Jonathan Weisman at jonathan.weisman@wsj.com

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