Pay Freeze & Pay Raise

December 10, 2010

by Mike Causey

While most federal workers are looking at a White House-induced 2-year pay freeze most American workers, including some federal employees, may get a 2 percent increase in take home pay starting next year.

Unless you've just returned from outer space, you know that the President proposed and Congress is moving to impose, a two-year freeze on pay raises for 1.4 million white collar civilians. At the same time the administration wants Congress to jump-start the economy by giving millions of American workers, including some but not all feds, what amounts to a 2 percent pay raise starting in January.

As often happens during times of ambitious financial tinkering, many federal and postal workers feel they are caught in the middle as taxpayers and government employees.

The majority of U.S. government workers are under the Federal Employees Retirement System. Like most other American workers they pay into Social Security. If Congress approves the change the Social Security payroll tax would drop two percentage points starting in January.

But a huge chunk of the federal workforce, maybe as many as half a million employees, do not pay into Social Security. These people, most hired before the mid-1980s, are under the old Civil Service Retirement System. They pay into medicare but not the much larger Social Security tax. So any cut in the Social Security tax wouldn't benefit them even though they, like their coworkers under the FERS program, would both be subject to the pay freeze. And a lot of them think this is unfair. For instance:

"With the President's proposal to cut the FICA tax by 2% for this year, the ENTIRE Country gets a 2% pay raise EXCEPT government employees in the old CSRS!!! Someone needs to address this." Larry C. in Maryland.
"Is the proposed 2% payroll tax reduction solely aimed at withholding for social security? If yes, does that mean that federal workers in the CSRS that don't pay into social security would not see any reduction in their withholding?" Joe at the IRS
"Run this one by me again. We are going to have our pay frozen, at a time when health insurance premiums are going up, and the rest of the country is going to get a 2 percent pay raise. What am I missing here?" Roger R., Kansas City

Many more have asked if they would be left out of the Social Security tax reduction?

Short answer: Yes. If you don't pay the tax there will not be any reduction in what they don't pay.

Next question: Is that fair? Is it fair for the government to freeze government workers pay and then give the majority of them (those under the FERS system) an extra 2 percent to spend next year?

Any thoughts?

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To reach me: mcausey@federalnewsradio.com