Hit & Run

Trump Remembers Budget Deficit, Announces Federal Pay Freeze

The federal government has run up a deficit of $684 billion this year. The CBO predicts that number will exceed $1 trillion in 2019.

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Ron Sachs/CNP/AdMedia/Newscom

Citing the budget deficit, President Donald Trump said today he is freezing scheduled pay raises for civilian employees of the federal government.

"Under current law, locality pay increases averaging 25.70 percent, costing $25 billion, would go into effect in January 2019, in addition to a 2.1 percent across-the-board increase for the base General Schedule," Trump wrote in a letter to House Speaker Paul Ryan and Vice President Mike Pence (the president of the Senate). "We must maintain efforts to put our Nation on a fiscally sustainable course, and Federal agency budgets cannot sustain such increases." He cited Title 5 of the U.S. Code, which lets the president freeze civilian federal employee pay increases due to "national emergency or serious economic conditions affecting the general welfare."

Trump is right to point out the scary fiscal situation. The federal government ran a deficit of $77 billion last month, a 79 percent increase over July 2017. The budget deficit adds up to $684 billion though the first 10 months of the 2018 fiscal year, up 21 percent from the same point last year, MarketWatch reports.

The rising deficit is due in part to the tax reform bill Trump signed into law in December. Corporate tax revenues saw a 34 percent year-over-year drop in July as companies took advantage of a 14-point cut in the corporate tax rate (from 35 percent to 21 percent).

The tax legislation did nothing to rein in federal spending, which rose 10 percent last month when compared to July 2017. With revenue down and spending up, a larger budget deficit was inevitable. In fact, the Congressional Budget Office predicts that the budget deficit will surpass $1 trillion for the 2019 fiscal year.

While Trump has yet to propose reducing spending on big-ticket items such as defense or entitlements, he is trying to trim the decicit by changing how federal employees are paid. "In light of our Nation's fiscal situation, Federal employee pay must be performance-based, and aligned strategically toward recruiting, retaining, and rewarding high-performing Federal employees and those with critical skill sets," Trump wrote today. "Across-the-board pay increases and locality pay increases, in particular, have long-term fixed costs, yet fail to address existing pay disparities or target mission critical recruitment and retention goals."

The salary freeze won't affect military personnel, who will still get a 2.6 percent pay bump next year.

It's not clear how much money the pay freeze would save. However, Trump in May proposed cutting total federal employee compensation by $143.5 billion. And his latest decision is not particularly surprising. The Washington Post reports:

Trump's position…is a routine move at this point in the budget process because no decision has been made regarding a pay raise for federal employees come January 2019. Under the complex federal pay law, in that case such a message must be issued by the end of August to prevent a much larger raise from taking effect automatically should no decision be made by the end of the year.

In July, the House effectively approved the proposal, although the Senate later passed a bill that includes a salary increase. If the scheduled pay raise garners enough support in both houses to overturn a presidential veto, Trump's freeze won't amount to much.