Saturday, February 25, 2012

Federal Budget Cuts

                                             Federal Budget Cuts

In a conversation with a friend recently he mentioned that all the employees at his company would have to take a 10% pay cut this year. He was naturally concerned but at the same time he realized that it was necessary in order for everyone to keep his or her jobs.

Companies, even major ones like the one he worked for, cannot necessarily raise their prices in order to achieve greater revenue. In a highly competitive environment, higher prices often mean less actual revenue as customers either flee to cheaper products, or just buy less.

Unfortunately, the Federal Government does not work this way. Facing a huge operating deficit, the President can only propose increasing prices or taxes without one cent of spending reduction.

Here is a modest proposal. Many years ago I read a letter to the editor of a major newspaper from the owner of an auto dealership that was trying to weather another economic recession like ours. He came up with what he called a 5-10-15 plan. In his company the top third of wage earners had to take a 15% pay cut. The middle third had their pay cut by 10%, and the bottom third only had to take a 5% cut.

In other words, if the CEO was making $150000 per year, his pay was cut by 15% or $22500. Someone making $75000 per year had to take a cut of 10% or $7500. An administrative assistant making $30000 per year had to take a cut of 5% or $1500. Given the circumstances, anyone would agree that these cuts were fair and equitable, but they also worked. The company was saved and weathered the storm until the economy recovered, but in the meantime not one employee lost their job.

How much would the Federal government save if every employee, including the President and Members of Congress, making over $150000, had to take a 15% pay cut? Substantially more would be saved if the great mass of Federal employees making between $50000 and $100000 had to take a $10% cut. Even greater savings would be realized if all those making less than $50000 per year had to take a 5% cut.

In this way, no one would lose their jobs and there would be no need to cut needed departments and services. Cutting jobs usually means that higher salaried government workers just bump lower salaried ones out of their jobs. To ease the pain the cuts could be phased in over two years.

This 5-10-15 plan would be an important first step in turning the massive ship of state around before it sinks under the massive load of debt and taxation. We are not too far from following Greece and Italy into a titanic disaster. ###

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