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Proposed Federal Pay Increase Nothing to Scream About

$375 a year sounds good — until you break it down


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:

  • Private-sector pay has increased 2% in the past 12 months.
  • Inflation is up 3.4% in the past 12 months.
  • That money isn’t the take-home amount, but the pre-tax amount.
  • The average federal worker makes $75,000.

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, 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) 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). Tasty, but not as filling.

National Treasury Employees Union president Colleen Kelley — whose organization represents 150,000 American workers — said in a statement 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.

Article printed from InvestorPlace Media,

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