If you've visited the Prospect's homepage recently, you'll have noticed a clock counting down to midnight today. By the end of the day the federal debt will reach its congressionally set limit of $14.294 trillion. Does that mean the government will default on its debt today? Not quite. Treasury Secretary Tim Geithner has a box of tools that allows him to reconfigure the government's books, temporarily keeping the lights on and still paying creditors interest on government bonds. Geithner has stated that he can continue tinkering with government operations until Aug. 2, at which point the government will have to choose between shutting down government operations or paying its creditors until its borrowing limit is raised again. Republicans and Democrats have accepted that date, with little apparent rush toward completing a deal now that the actual limit has been reached.
So how exactly will the government find all the money to cover its debt while Congress continues to dither? Geithner is pulling money out of a fund scheduled to pay federal workers' pension benefits. The fund is legally mandated to pay retirees, so in theory, no one should be hurt by the maneuver -- the lost funds will be repaid once the debt ceiling is raised. But The Washington Post reports that Republicans view the federal employee pension system as a prime target for cuts in the negotiations on the debt limit.
Republicans have proposed saving more than $120 billion over the next decade by requiring the civilian workforce to contribute more toward retirement -- a plan that would effectively impose an immediate 5 percent pay cut on more than 2 million federal employees. President Obama's bipartisan fiscal commission has also endorsed the idea, calling the federal system “out of line” with the private sector.
Since funds for the pension plan are about to be cut as a way to delay defaulting on the debt, Republicans will have the upper hand at the negotiating table when they argue that the newly created funding hole should be filled by those workers rather than taxpayers.
It is a mistake to further decrease the compensation of government employees when they are already slightly underpaid compared to workers in similar positions at private companies. But the Post describes the federal pension fund as a lavish system. That is an indictment of private companies rather than public employees. The traditional safety net from a pension plan has collapsed at the majority of private companies, leaving people to fend for themselves when it is time to retire. The government should be applauded for its willingness to respect the employees who spend their lifetime working for the public and be held as a model for how private companies treat their employees.
