Changes to COLAs, retirement benefits included in Obama's 2014 budget

Friday - 4/5/2013, 9:12am EDT

(This story was updated Friday, April 5, at 12:33 p.m.)

President Barack Obama's 2014 budget proposal will include changes to the way cost-of-living adjustments are calculated and reforms to federal employees' retirement programs.

The President is calling for a change to the formula the Labor Department uses to measure inflation, which would reduce annual cost-of-living adjustments for federal and military retirees, and other Social Security recipients.

The Bureau of Labor Statistics currently calculates inflation by measuring the difference in price of a number of key goods and services. The proposed "chained Consumer Price Index", on the other hand, assumes that people often substitute lower-cost alternatives, especially during tough economic times - which means smaller annual COLA increases.

The President first suggested his willingness to support this change during fiscal cliff negotiations back in December.

The President's budget plan is also expected to include "increased charges to federal employees for their retirement benefits," according to the Washington Post. Projected savings were not immediately available but a previous deficit reduction plan released by the administration listed $35 billion in savings from changes to feds' retirement benefits.

In the President's fiscal 2013 budget request, the administration proposed increasing the contributions feds' make to their retirement accounts by 1.2 percent of their salaries, phased in at 0.4 percent of salary over three years. That plan projected $21 billion in savings over 10 years but was never passed into law.

Federal unions are voicing their staunch opposition to both aspects of the budget plan that would affect federal employees.

"The poets remind us that it is easier to forgive an enemy than a friend. But it is hard to forgive our friend President Obama when his administration continues to act more and more like our enemies," American Federation of Government Employees National President J. David Cox said in a statement. "His administration has frozen our pay for three years. It oversaw and approved shifting retirement system costs for new employees that will lower their salaries by 2.3 percent forever. The administration signed the Budget Control Act that brought us the sequester. It is implementing the sequester by imposing lengthy furloughs on federal workers while leaving the larger and costlier contractor workforce untouched. It pushes a cruel cut to Social Security, veterans', and federal employee retirement benefits through the chained CPI. And now, a final act of betrayal. The White House proposes a fiscal 2014 budget with $35 billion MORE in retirement system cuts, accelerating the race to the bottom for federal workers and their families."

The inflation adjustment would reduce federal spending over 10 years by about $130 billion, according to past White House estimates. Because it also affects how tax brackets are adjusted, it would also generate about $100 billion in higher taxes and affect even middle income taxpayers.

Obama is also expected to support a 1 percent pay increase for federal employees in his 2014 budget proposal, scheduled for release Wednesday, April 10.

A senior administration official, who spoke to the Associated Press on condition of anonymity, said Obama's budget plan would reduce the federal government's deficit by $1.8 trillion over 10 years.

The plan will also include reductions in Medicare spending, much of it by targeting payments to health care providers and drug companies.

Obama's budget proposal also calls for additional tax revenue, including a proposal to place limits on tax-preferred retirement accounts for wealthy taxpayers. Obama has also called for limits on tax deductions by the wealthy, a proposal that could generate about $580 billion in revenue over 10 years.

The reductions in the growth of benefit programs, which would affect veterans, the poor and the older Americans, is sure to anger many Democrats. Labor groups and liberals have long been critical of Obama's offer to House Speaker John Boehner (R-Ohio) for including such a plan.

Administration officials have said Obama would only agree to the reductions in benefit programs if they are accompanied by increases in revenue, a difficult demand given the strong anti-tax sentiment of House Republicans.

That Obama would include such a plan in his budget is hardly surprising. White House aides have said for weeks that the president's offer to Boehner in December remained on the table. Not including it in the budget would have constituted a remarkable retreat from his bargaining position.

Obama's budget comes after the Republican-controlled House and the Democratic-run Senate passed separate and markedly different budget proposals. House Republicans achieved long-term deficit reductions by targeting safety net programs; Democrats instead protected those programs and called for $1 trillion in tax increases.