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House Speaker Newt Gingrich (right) and Representative John Kasich, the new Budget Committee Chairman, have pressured the Bureau of Labor Statistics—so far, unsuccessfully—to cap consumer price index increases.
Whom Do You Trust?
Which political party—Democratic or Republican—does more to protect military pay and benefits? It’s a tough question any time, but particularly so this year.
Republicans grabbed the reins of Congress with a contradictory call to increase defense spending but to impose a tough new discipline on federal budgets. That left some prominent Republicans promising bigger military pay raises while others dusted off old deficit-reduction ideas like privatizing commissaries and capping cost-of-living adjustments for military retirees. For Democrats, the Clinton administration unveiled an ambitious quality-of-life package that would provide “full” military pay raises through the year 2001. But the same pay raise plan can be viewed as an unprecedented commitment to five years worth of pay caps. For service people, Washington black hats and white hats were turning into a jumble of gray.
Bill Clinton is still President but, thanks to Defense Secretary William Perry, has undergone a conversion of sorts on the issue of taking care of service people. His 1996 defense budget asks millions more for housing and family programs. Other highlights include:
> Cost-of-living Adjustments Equity: The budget sets aside about $380 million to move next year’s cost-of-living adjustments from I October to 1 April, matching the cost-of-living adjustments date for federal civilian retirees. That will add about $220 to annuities next year for the typical retiree. Military retirees are still slated to lose $1 billion in inflation protection in 1997 and 1998, but the administration wants to address the problem one year at a time.
>• Pay Raises: Clinton requests 2.4% next January, one point higher than proposed under his earlier pay cap plan. Perry and Clinton say it is the first of five full military pay raises through the year 2000. They define full raises, however, as “the most allowed by law,” and the “law” in question is a deficit-reduction measure that caps raises one-half percentage point below private-sector wage growth. If the administration really backed full raises, it would join with Republican Senators John McCain (Arizona) and John Warner (Virginia) in their call to provide a 2.9% military pay raise next year.
> Basic Allowance for Quarters Increase: The budget calls for an extra 1% increase next January in Basic Allowance for Quarters. This is the first of five special Basic Allowance for Quarters raises through year 2000. The goal is to restore Basic Allowance for Quarters to the relative value it had a decade ago, when combined housing allowances covered 85% of median U.S. rental costs. Service people were expected to “absorb" the remaining 15%. Today, the average absorption rate—i.e., out-of-pocket cost—is 21%.
What the new Congress would do with these initiatives remained a mystery as the House Republicans scrambled to fulfill their “Contract With America.” Concerns about military readiness appeared to give early ground to the goal of a balanced budget by 2002.
By late February, Representative John Kasich (R-Ohio), the new Budget Committee Chairman, had his panel working furiously on a budget resolution that would impose new fiscal discipline on every facet of government, including defense. Budget Committee staffers confirmed that one of the many ideas under review was to privatize commissaries. At most stateside bases, privatization would mean closing stores and forcing patrons to shop at commercial markets. It would mean price hikes at stores overseas and in remote locations. However, the Budget Committee alone cannot kill commissary funding. It sets the overall budget plan, plus spending limits for broad areas such as defense. The National Security and Appropriations Committees determine how defense money is spent. But by setting tight ceilings and urging specific cuts, Kasich could put commissaries at risk. Knocking the $1 billion subsidy from the defense budget, for example, would force commissary backers to raid other accounts.
Kasich and House Speaker Newt Gingrich (R-Georgia) also began pressuring the Bureau of Labor Statistics to overhaul the consumer price index used to adjust federal entitlement programs, including military retirement and Social Security. Both lawmakers heartily agreed with Federal Reserve Board Chairman Alan Greenspan that the current consumer price index overestimates inflation by .5 to 1.5 percentage points a year. Greenspan said if Congress cut one percentage point a year, it could lower the federal deficit as much as $150 billion over the next five years.
Bureau of Labor Statistics economists agreed that biases are built into the index (although not as large as Greenspan suggests), and eliminating them could take several years. Bureau of Labor Statistics officials also noted that the current consumer price index actually might understate inflation for the elderly. An experimental index used to track prices for consumers aged 62 and older shows inflation for them runs about a one-half percentage point higher than measured by the standard consumer price index. This is because older Americans spend a much higher portion of their income on health care, a service category where prices have soared in recent years.
With Bureau of Labor Statistics officials refusing to be pressured into lowering the consumer price index, Kasich and Gingrich were left to consider imposing their own caps on cost- of-living adjustments to get the quick budget savings described by Greenspan. Cost-of-living adjustment caps, however, do not provide the political cover of technical adjustments in the consumer price index. They look instead like a direct assault on entitlements.
How cost-of-living adjustments fare—indeed, the overall fate of military pay and benefits this year—might depend upon the daring of Republicans as they move toward their balanced- budget goal.
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Proceedings / April 1995