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COLA change would cost careerists tens of thousands

Apr. 15, 2013 - 09:03AM   |  
The 11th Quadrennial Review of Military Compensation called for giving nearly all reserve-component troops one day's pay for one day's service.
The 11th Quadrennial Review of Military Compensation called for giving nearly all reserve-component troops one day's pay for one day's service. (Marine Corps)
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President Obama’s proposal to cap annual cost-of-living adjustment increases in federal benefits — including military retired pay — is a good example of how seemingly small changes can have a huge impact over time.

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President Obama’s proposal to cap annual cost-of-living adjustment increases in federal benefits — including military retired pay — is a good example of how seemingly small changes can have a huge impact over time.

Part of a larger budget agreement with Congress, the proposed change in how COLAs are calculated would result in annual increases that are 0.3 of a percentage point less than the current formula, so what would normally be a 3 percent increase would instead be capped at 2.7 percent, for example.

That small difference would add up tremendously over time, especially for military retirees and disabled veterans who start receiving retired pay at a young age.

For the average enlisted retiree, it would mean a lifetime reduction in retired pay of about 8.5 percent, or almost $171,000, according to data provided by the Defense Department’s Office of the Actuary. For the average officer, the percentage reduction would be less, 7.2 percent, over a lifetime, but his total dollar loss would be higher — more than $246,000 — because the average officer’s retired pay starts out at a higher level.

There is no guarantee the proposal will take effect, as Obama’s offer is contingent upon Republicans accepting tax increases as part of a budget deal. Still, the concept has created some unusual alliances among its opponents.

On the left, Sen. Bernie Sanders, I-Vt., the Senate Veterans’ Affairs Committee chairman, has pledged to do “everything in his power” to block the change, which he says will hit seniors and disabled veterans especially hard.

On the right, Grover Norquist, head of the advocacy group Americans for Tax Reform, called the change “a very large tax increase over time” and said any lawmakers who support it would violate the ATR’s Taxpayer Protection Pledge, which many Republicans have signed.

The proposal involves a change in how the Consumer Price Index, used to determine annual COLAs, tracks the cost of goods and services.

The so-called “chained CPI” would take into account what is known as “substitution bias,” which might lead consumers to switch products rather than pay a higher price for a product. For example, if the price of oranges goes up, a consumer may decide to buy cheaper grapefruit instead.

Sanders orchestrated a Senate vote in March that opposed applying the chained CPI formula to military and veterans benefits.

But that vote came on a nonbinding amendment on the equally nonbinding resolution that set broad federal budget targets for 2014, so it does not have the full weight of law.

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