Proposed Federal Pay Increase Nothing to Scream About

by Kyle Woodley | January 6, 2012 1:52 pm

How does $375 more a year sound?

That’s what the average federal worker will get in 2013 should a proposed 0.5% federal pay increase make its way through Congress. According to the Office of Management & Budget, the White House plans to put the proposal in its 2013 budget, and approval would end a three-year pay freeze enacted by President Barack Obama.

While no one’s coughing at more money in a down economy, let’s not make a mountain out of this molehill. Among things that should be immediately pointed out about this 0.5% increase:

Concerning inflation, federal workers won’t be alone in their disappointment with the government trailing the inflationary curve. In October 2011, Social Security announced its first payout hike in three years[1], with the Cost of Living Adjustment coming to 3.6%. Of course, at the time, inflation was chugging along at a 3.8% rate, meaning at best that bigger check was merely a wash in keeping up with the times.

Of course, if your average federal work is making $75,000, that $375 will be taxed at 25%, meaning you’re now looking at only about $280. For bill-paying purposes, that’s about $23.40 a month. For weekly spending purposes, you’re talking about $5.40. In other words, you’d still be digging in your couch for enough change to afford a Chipotle (NYSE:CMG[2]) burrito.

And those underwhelming numbers apply if you’re an “average” federal worker. If you’re among the rank-and-file — for our purposes, let’s say you bring in “only” $50K a year — those figures end up being about $187 per year after taxes, turning that Chipotle burrito into a trenta-sized coffee at Starbucks (NASDAQ:SBUX[3]). Tasty, but not as filling.

National Treasury Employees Union president Colleen Kelley — whose organization represents 150,000 American workers — said in a statement[4] that “the good news is that the pay freeze is ending, but I am disappointed at the size of the proposed 2013 increase.”

Chances are, most of those workers have the same mixed feelings.

As of this writing, Kyle Woodley did not hold a position in any of the aforementioned stocks.

Endnotes:
  1. announced its first payout hike in three years: http://investorplace.com/2011/10/seniors-should-be-furious-at-social-security-increase/
  2. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  3. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  4. in a statement: http://www.nteu.org/PressKits/PressRelease/PressRelease.aspx?ID=1387

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