Another Detail of the President's Budget

After hinting at how they would cut defense spending yesterday, the Obama Administration has given out another small detail of its upcoming budget. According to the Washington Post's Ed O' Keefe, the White House will request a 0.5 percent pay increase for federal employees in FY 2013, on the heels of a two-year pay freeze.

Of course, in budgeting, whether you view that as an additional cost or savings depends on your baseline. Republicans in Congress and GOP presidential candidates who have called for an extended pay freeze would view it as a cost. Others who view an increase with inflation as the "default" would label it as savings.

Either way, what is clear is that this is an effort by the Obama Administration to get the discretionary spending portion of his budget under the scheduled spending caps. As laid out in the Budget Control Act, the discretionary cap for FY 2013 will only grow by 0.4% over the FY 2012 cap (from $1.043 trillion to $1.047 trillion). Thus, this policy could be seen as a way to bring pay rate increases in line with the overall increase in the cap. In other words, the Administration is choosing to specify a policy it will undertake, at least in this case, to stay within the caps, something it declined to do in its submission to the Super Committee in September.

Keep in mind that the policy itself will have no impact on the deficit, since every budget baseline in use already assumes that lawmakers will adhere to the discretionary caps and this policy does not change the actual level of the caps. Again, it only states a policy that the Administration is using to stick to the caps that were agreed upon. The effect of this policy is to either give appropriators more room for other discretionary spending (relative to an inflation increase in pay) or less room for other spending (relative to a pay freeze), depending on your view. Indeed, this is the confusing nature of discretionary spending in a nutshell.

We will keep you posted as more and bigger details become available over the next month about the FY 2013 President's budget.

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