The Taxpayers Protection Alliance (TPA) is a non-­‐profit non-­‐partisan organization dedicated to educating the public through the research, analysis and dissemination of information on the government’s effects on the economy. TPA, through its network of taxpayers will hold politicians accountable for the effects of their policies on the size, scope, efficiency and activity of government and offer real solutions to runaway deficits and debt. Through blogs, commentaries, and special spending alerts, TPA will publish timely exposés of government waste, fraud, and abuse. Recognizing the importance of reaching people through traditional and new media, TPA will utilize use blogs, Twitter, and Facebook to reach out to taxpayers and government officials. Ultimately recognizing that the greatest power of change rests with the millions of Americans across the country that are ready for a smaller more accountable government, TPA will be a catalyst for connecting taxpayers to their elected and non-­‐elected officials. 108 N. Alfred Street, Lower Level Alexandria, Virginia 22314 (703) 229-­‐0254 www.protectingtaxpayers.org Our Generation is a 75,000 member nonprofit, nonpartisan advocacy organization founded in 2009 to research, educate and promote long-­‐term free market solutions to today’s public policy concerns. 108 N. Alfred Street, Lower Level Alexandria, Virginia 22314 (571) 431-­‐7420 www.ourgeneration.org
INTRODUCTION The country is $17.6 trillion in debt (and counting). Many pieces of legislation have gone unfinished including the annual spending bills that Congress has failed to pass for the last several years. In the midst of all of this financial and legislative disarray, Congress is on a five-­‐
week August recess and they are not slated to return until a week after Labor Day. When they do return, they are only expected to be in session for two weeks before heading home to campaign for re-­‐election. Americans continue to be disappointed and disgusted with Congress. According to Gallup, “…with several key public opinion indicators as negative or nearly as negative as they have been in any recent midterm election year. This includes congressional job approval, which, at 16%, is on pace to be the lowest in a midterm election year since Gallup first measured it in 1974.”1 And, Congress is becoming increasingly out of touch. No one exemplifies this more than retiring Congressman Jim Moran (D-­‐Va.), who told Roll Call that, “Members of Congress are underpaid.”2 Compounding Americans’ frustration is the fact that Members of Congress receive pay and benefits far in excess of what average working Americans receive. In addition to a salary of $174,000 per year, which by itself puts DC representatives among the highest-­‐paid 5 percent of American workers, they also receive more generous fringe benefits than typical American employees. In fact, in 2014 congressional compensation including benefits totals around $286,000 per year. Aside from the fact that this total earnings package far exceeds the average amount middle-­‐class Americans are making, the output of work taxpayers are getting for their investment seems overpriced. Faced with a growing public concern for the increasing amount of government spending, there are a number of pieces of legislation offered that reduce or freeze congressional pay. Millions of dollars per year could be cut from the budget if congressional pay cut legislation was adopted. By reducing their salary to $100,000 per year, taxpayers could save $39 million per year. Whether a Congressional pay reduction is warranted depends, in part, upon perceptions regarding the relative level of congressional compensation. Because of the unique nature of legislative service, it is difficult to determine the appropriate level of compensation with precision. But comparisons of congressional pay and benefits to those received by highly educated private-­‐sector workers, as well as to those received by legislators in other countries, can serve as support for the conclusion that members of Congress are overpaid. The history of Congressional pay Until the 1850s, members of Congress were paid on a per diem basis of $6-­‐$8 for each day that Congress was in session. Although the number of days in session varied from year to year, members of Congress who were in session around 160 days per year made annual pay of 1
“Key Midterm Election Indicators at or Near Historical Lows” Gallup, 16 June 2014 Web. 14 Aug. 2014
<http://www.gallup.com/poll/171671/key-midterm-election-indicators-near-historical-lows.aspx>
2
“Moran: Members Can’t Afford to Live Decently in D.C. (Audio)” Roll Call, 3 April 2014. Web 15 Aug. 2014 <http://blogs.rollcall.com/hill-­‐
blotter/moran-­‐members-­‐cant-­‐afford-­‐to-­‐live-­‐decently-­‐in-­‐d-­‐c/>
around $960 to $1,280. During this same time period, service in Congress was considered as part-­‐time employment and members of Congress typically had additional employment outside of their duties in Congress. In fact, this tradition is still the norm in many states. Over time, however, Congressional service evolved into a full-­‐time occupation that paid an annual salary rather than per diem compensation. Beginning in 1855, members of Congress were paid an annual salary of $3,000, with periodic increases from year to year. By the end of World War II, Congressional salaries had been increased to $12,500 per year, equal to around $120,000 per year in today’s dollars. From the late 1960s through the late 1980s, Congressional salaries were increased based upon recommendations from presidential commissions, which could be approved, disapproved, or modified by Congress itself.3 The Ethics Reform Act of 1989 put in place the current method by which Congressional pay is adjusted. Members of Congress receive an automatic annual salary increase based upon changes in wages and salaries measured in the Employment Cost Index, a measure of labor costs tabulated by the Bureau of Labor Statistics. The ECI is not a measure of inflation but instead tracks changes in compensation throughout the economy. Because private-­‐sector compensation rises with productivity, the ECI will generally increase at a faster rate than inflation. From March 2010 through March 2011, wages and salaries as measured in the ECI increased by 1.5 percent. However, salaries for Members of Congress cannot rise more quickly than the base pay for ordinary federal government employees, which Congress voted to freeze for two years beginning in 2011. Thus, Congressional pay remains at $174,000, though it will automatically increase in future years if Congress does not vote to halt the raises. Congressional pay relative to private-­‐sector compensation One way to measure the relative size of congressional salaries is to compare them to the average wages earned by private-­‐sector employees. According to the Organization for Economic Cooperation and Development (OECD), an average full-­‐time employee in the United States earns an annual pay of $55,048. Members of Congress receive salaries of $174,000. This means that Members of Congress make 3.2 times more than the average full-­‐time American worker. The relative disproportionality of congressional pay does not disappear if one compares Congressional pay with the pay of more educated private-­‐sector employees. According to the Bureau of Labor Statistics, private-­‐sector workers holding masters degrees earned more than the average full-­‐time American worker in 2013, about $69,100.4 Even by this standard, congressional salaries are more than double those paid to well-­‐educated private-­‐sector workers. 3
Congressional Research Service. “Salaries of Members of Congress: A List of Payable Rates and Effective Dates, 1789-2008.” February 21,
2008.
4
See http://www.bls.gov/emp/ep_chart_001.htm.
2 Congressional pay relative to the compensation paid to foreign legislators Another way to look at this issue is to compare the salary paid to Members of Congress with the amount paid to elected officials in other countries, since the demand for elected office and the requirements of all elected officials are reasonably similar between countries. Because incomes differ considerably, however, comparisons of cash compensation may be misleading. For that reason, for each country we calculate the ratio of legislators’ salaries to the average salary of a fulltime worker, as reported by the OECD. For instance, a ratio of 2 would indicate a legislator salary that is twice the salary of an average full-­‐time employee. By this standard, Members of the United States Congress are among the highest-­‐paid legislators in the world. Figure 1 below shows the ratio of legislators’ salaries to wages for average full-­‐time workers in 13 developed countries. On average, legislators in other parts of the world receive salaries equal to 2.3 times the average wage. In only one other country – Japan – are legislators paid more relative to the citizens they govern. In the United Kingdom, for instance, members of Parliament receive salaries equal to 2.2 times the average full-­‐time worker wage. Ra,o of Legislator Salary to Average Full Time Wage 3.7 3.2 3.1 2.8 2.3 2.2 2.1 2.1 2.0 1.9 1.9 Spain Norway Sweden Australia France Ireland Netherlands Italy UK Germany Canada US 1.4 1.4 Japan 4 3.5 3 2.5 2 1.5 1 0.5 0 Fringe benefits Salaries alone are an incomplete measure of total compensation, as they do not include benefits such as pensions, health coverage. In the United States, Members of Congress receive fringe benefits that are significantly more generous than those received by comparable private-­‐
3 sector workers.5 In fact, in some respects Members of Congress receive even more generous benefits than other federal employees. The largest difference between Congressional benefits and those paid to private sector workers is in the area of retirement benefits. Members of Congress participate in the Thrift Savings Plan (TSP), a defined contribution pension that offers more generous employer contributions than the typical private-­‐sector 401(k) plan. Participants in the TSP are eligible for an employer contribution of up to 5 percent of pay, versus an employer contribution of around 3 percent of salary into the typical 401(k) plan. In addition, Members of Congress are eligible for a traditional defined benefit pension plan, which is more generous than the pension offered to other federal employees. Unlike state and local government employees, who generally must contribute around 6 percent of their pay to defined benefit pensions, Members of Congress contribute only 1.3 percent of their salaries. Regular federal employees pay 0.8% of pay, though they receive a less generous benefit even after netting out the contributions. Recent legislative changes mean that newly-­‐hired federal workers will pay 3.1 percent of their pay toward retirement benefits, although this does not affect current employees, including current Congressmen. Members of Congress may also be eligible for subsidized health care in retirement, a benefit that is uncommon in the private sector and less generous when it is offered. In total, Members of Congress receive contributions toward retirement benefits equal to around 47 percent of their annual salaries, or about $82,000.6 In the private sector, where the typical employee is eligible only for a 401(k) type pension plan and does not qualify for retirement health coverage, total employer contributions toward retirement equal around 9 percent of cash compensation. Thus, Congressional pensions are considerably more generous than those offered to private sector employees. In the area of paid time off, Federal employees (including Members of Congress) receive paid time off equal to 16.5 percent of annual salaries. Even assuming that Members of Congress take only half the paid leave of ordinary federal employees, paid time off for Members of Congress is worth another $14,000 per year. Likewise, US taxpayer contributions toward the health and life insurance plans for which Members of Congress are eligible are worth almost $6,000 per year, and contributions covering the employer share of Social Security and Medicare taxes are worth another $9,000 annually. Adding all of this up, the total estimated value of Congressional fringe benefits exceeds $110,000 per year, bringing total annual compensation to around $286,000 per year.7 5
For details, see Biggs, Andrew G. and Jason Richwine. “Comparing Federal and Private Sector Compensation.” American Enterprise Institute Working Paper 2011-­‐2, June 2011. 6
See Biggs and Richwine (2011) for details on methodology. 7
Total benefits are calculated using figures from Biggs and Richwine 2011, which express categories of federal employee benefits as a percentage of the average federal employee salary. Benefits that are proportional to salaries, such as retirement benefits, paid time off, Social 4 Concerns over congressional pay Some believe that compensation for Members of Congress is excessive, particularly in a struggling economy with more than 6 percent unemployment and at a time when many Americans are forced to make financial sacrifices. Congressional pay reductions in times of financial stress are not unprecedented: In 1932, for instance, Congressional salaries were reduced from $10,000 to $9,000, with a further reduction to $8,500 in 1933. In total, Congressional pay was cut by 15 percent as Americans struggled through the Great Depression. This was more than even the most ambitious bills currently filed in Congress. A 2011 proposal from former Rep. Gabrielle Giffords (D-­‐Ariz.) would have cut annual salaries by 5 percent, or $8,700, saving approximately $4.6 million per year. Rep. Jaime Herrera Beutler (R-­‐
Wash.) has proposed legislation to reduce congressional pay by 10 percent, as well as to reduce salaries for the president and vice president. Additional legislation would eliminate provisions in current law granting automatic annual pay increases to Members of Congress, forcing Congress to vote on its own pay increases. In early 2012 Rep. Kevin Yoder (R-­‐Kan.) introduced legislation to reduce Congressional salaries eliminate pay raises. Similarly, Senator Jon Tester (D-­‐Mont.) sponsored legislation to freeze lawmakers’ pay for the year 2013. In early 2013, Rep. Dave Loebsack (R-­‐Iowa) proposed legislation that would cut Members of Congress’ pay by 10 percent.8 Loebsack has previously sponsored legislation that would tie the pension eligibility age for Members of Congress to the Social Security retirement age, which is currently 66 and rising to 67 by the early 2020s. Also in 2013, legislation sponsored by Reps. Ron DeSantis (R-­‐Fla.) and Ami Bera (D-­‐Calif.) would reduce Congressional pay by 8.2 percent, to match the percentage cuts in non-­‐defense discretionary spending required as part of the budget sequestration agreement. Multiple bills from both Republicans and Democrats introduced in the fall of 2013 would ensure that if the government did shut down, members of Congress would not be paid.9 In the fall of 2013, there were two attempts that would ensure that if the government did shut down, members of Congress would not be paid. Rep. Richard Nolan (D-­‐Minn.) offered, “The No Government No Pay Act of 2013,” which would “prevent lawmakers from receiving pay for Security and Medicare payroll taxes, etc., are calculated by applying these percentages to the congressional salary of $174,000 per year. Benefits with a fixed dollar value for each employee, such as employer provided health coverage, are calculated based upon the salary of the average federal employee. One category of federal employee pay, Supplemental Pay, which includes over time, bonuses, and other payments, is excluded on the assumption that Members of Congress are not eligible for such payments. 8
See http://loebsack.house.gov/news/documentsingle.aspx?DocumentID=317665 9
“Bills would halt Congress’s pay during shutdown periods” The Washington Post, 8 Oct 2013 Web. 18 Aug. 2014 <http://www.washingtonpost.com/blogs/federal-­‐eye/wp/2013/10/08/bills-­‐would-­‐halt-­‐congresss-­‐pay-­‐during-­‐shutdown-­‐periods/> 5 every day that the government is in shutdown mode.”10 Rep. Chris Collins (R-­‐N.Y.) introduced the “Government Shutdown Fairness Act,” which would “place Congress’s pay in escrow until the shutdown ends, compensating lawmakers retroactively.”11 In January 2014, Rep. Keith Rothus (R-­‐Pa.) introduced H.R. 3887, the Congressional Pay for Performance Act of 2014. This bill would ensure that unless Congress completed a budget and approved all legislation for appropriations, they would receive no pay.12 In addition, other Congressional proposals to reform pay for federal employees generally may also apply to Members of Congress. For instance, Congressional Republicans have proposed raising the standard federal employee defined benefit pension contribution from 0.85 percent of pay to 5 percent of pay. Conclusion Members of Congress should be adequately compensated for the work they do when elected by the citizens. However, the salaries and benefits paid to members of Congress make them among the highest compensated employees in the American workforce. Particularly during a weak economic recovery, when unemployment is high and many Americans have had to make do with less, Congress should be sensitive regarding the salaries and benefits it grants itself. Given budget deficits and Congress’ seeming inability to agree on plans to address the shortfall, many Americans are skeptical of what they receive in return for what they are paying their elected representatives. Immediate steps need to be taken to cut congressional salaries and benefits and reassure Americans that sacrifices made during this economic downturn are being widely shared. 10
“Bills would halt Congress’s pay during shutdown periods” The Washington Post, 8 Oct 2013 Web. 18 Aug. 2014 <http://www.washingtonpost.com/blogs/federal-­‐eye/wp/2013/10/08/bills-­‐would-­‐halt-­‐congresss-­‐pay-­‐during-­‐shutdown-­‐periods/> 11
Ibidem. 12
“WTAJ: Rothfus Introduces Congressional Pay for Performance Act” You Tube, 15 Jan 2014 Web. 18 Aug. 2014 <https://www.youtube.com/watch?v=l5sRBcjn6lo> 6