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National Active and Retired Federal Employees
Association (NARFE) Budget Cut Threats
in the 112th Congress(2011-2012)
ByDan Adcock
Legislative Director
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Upcoming Budget Threats
Debt-Limit CompromiseSuper CommitteeAutomatic CutsBalanced Budget AmendmentPossible Gov’t Shutdown
Debt Limit Compromise Law
No cuts to federal retirement, pay or health benefits
Discretionary cuts could affect job security Creates 12-member “Super Committee”
$1.5 trillion in additional cuts
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Congressional Super Committee
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Members from the House
Members from the Senate
Rep. Jeb HensarlingR-Texas, Co-chair
Rep. Xavier BecerraD-California
Rep. Dave CampR-Michigan
Rep. James ClyburnD-South Carolina
Rep. Fred UptonR-Michigan
Rep. Chris Van HollenD-Maryland
Sen. Patty MurrayD-WashingtonCo-chair
Sen.Max BaucusD-Montana
Sen. John KerryD-Massachusetts
Sen. Jon KylR-Arizona
Sen. Rob PortmanR-Ohio
Sen. Pat ToomeyR-Pennsylvania
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Super Committee: Created by debt-limit compromise law Equally divided between Rs & Ds Required to pass bill to cut deficit by $1.5 trillion
Through spending cuts or revenue increases Once approved, immediate House & Senate consideration Up or down vote, no amendments allowed.
Must report deficit legislation by November 23 Congress must pass bill by December 23 President must sign into law by January 15
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• Super Committee Starting Point Fiscal Commission Report
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Fiscal Commission Recommendations: Shift growing share of FEHBP premiums to enrollees Lower federal retiree COLA through “Chained CPI” Significantly increase employee retirement
contributions Base federal annuities on highest 5 years of salary
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Spending Cuts and/or Revenue Increases
Co-Chair Sen. Patty Murray, D-WA$1 trillion in special interest breaks and
loopholes in tax code "We have to address both spending and
taxes." Co-Chair Rep. Jeb Hensarling, R-TX
Overhauling the tax code to reduce income tax rates
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What happens if deficit bill is not enacted by Jan. 15, 2012?
Across the board automatic reductions Also known as “Sequestration”
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Automatic across-the-board cuts:Sequestration
Like Gramm-Rudman-Hollings Lost federal annuity COLA in 1985
But, unlike Gramm-Rudman-Hollings Federal retirement, FEHBP & pay exempt
Social Security, military retirement also protected Medicare partially exempt
Cuts limited to 2 percent Cuts only to health providers and insurance carriers
Discretionary spending not protected Could affect federal employee job security
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Why There Could Be A Deal
Huge Discretionary Spending Cuts Including the Defense Department
Defense Secretary Leon Panetta Raising the specter of "doomsday" for the
military Congress could re-write sequestration law
Avoid cuts
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Balanced Budget Amendment Debt-limit compromise law requires
Vote on Balanced Budget Amendment before December 31
Once ratified, could: result in unprecedented cuts to fed programs
prevent payment of SS, fed civilian & mil retirement
Balanced Budget Amendment
H.J. Res. 1House Judiciary Committee passed in JuneCaps spending at 18 percent of GDP
Gross Domestic Product (GDP): Total market value of goods and services Federal spending is currently 24 percent of GDP
Percentage will fall when economy recovers Long-term, percentage will increase
o Retirement of baby boomerso Eventual increase in interest rates
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Balanced Budget Amendment
H.J. Res. 1Would likely require balanced budget by 2018What would be needed to achieve balance?
House-passed Budget Resolution -- NO $5.8 trillion in cuts over ten years
o$375 billion in federal retirement cutsDoes not achieve balanced budget until 2030
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Balanced Budget Amendment
What would be needed to achieve balance by 2018? RSC Alternative Budget Resolution -- ALMOST
$9 trillion in cuts over ten years Achieve balanced budget in 2020 Cuts non-defense discretionary spending by 70% Privatized Medicare Part B beneficiaries pay growing share of premium Increases Medicare eligibility age to 67 Increases Social Security eligibility age to 70
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Balanced Budget Amendment
SS, fed civilian & mil retirement limited to Tax revenue collected in same year Taxes provides the cash flow needed to
Redeem Treasury securities in Trust Funds Trust funds could only redeem Treasury securities to pay
benefits only:If the rest of the federal budget ran an offsetting surplus Or if 3/5 of Congress voted to allow deficit spending
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Social Security Trust Fund
What Happens to Your Social Security Contribution
Social Security Payroll Withholding
Tariffs & Import Duties
Personal Income Tax
Corporate Income TaxOil & Gas Revenue
Spectrum Auctions
What Happens to Your Social Security Contribution
Social Security Benefits Paid
Balanced Budget Amendment
Affect on Retirement Trust FundsOPM actuarial projections:
CSRDF will meet its obligations in perpetuity Despite CSRDF financial soundness: If Balanced Budget Amendment was ratified
Cash needed to redeem Treasury Securities in CSRDFo Need to pay federal civil service annuities
Would be limited to the amount of taxes collected in the same year
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H.J. Res 1, Balanced Budget Amendment Spending caps waived during war or certain military
actions 3/5 vote of House & Senate required to raise debt limit 2/3 vote of House & Senate required to increase taxes Ratification:
2/3 of House & Senate ¾ of States Past Attempt: 1997
Passed House One Vote Short in Senate
26 states would promptly ratify it, and more would likely follow.
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Balanced Budget Amendment
NARFE’s Position:We support efforts to balance the budget
Feds have contributed to this effort2 year pay freeze: $5 billion1980s-1990s COLA losses: $50 billionConstitutional amendment unnecessaryCongress already has authority to
control spending
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Budget Cut ThreatsQUESTIONS AND ANSWERS