Cold truth: Pay freeze won’t save, cuts will

By Steve Rathje

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On Nov. 29, President Barack Obama announced a two-year freeze on the wages of federal employees, with intention of saving

$60 billion over the next 10 years.

Question: How does freezing wages at their current level actually provide a savings?

Answer: It doesn't.

To actually provide a “physical savings,” cuts, not freezing, need to take place. A freeze is merely preventive spending, a separate thing. This freeze is nothing more than a shell game to get taxpayers to believe that the government is serious about saving money and reducing spending.

Look at this from a common sense point of view. Say you own a company that spends

$1 million a year on payroll - payroll that it can no longer afford. Do you freeze future wage increases to save or reduce current capital expenditures? No. You cut wages and benefits immediately while analyzing the necessity of the labor force. Duties are combined wherever possible. Feasibility studies are made to determine internal costs versus subcontracted ones. Budgets are brought in line with revisions being made and prices are cut to stimulate sales in order to boost profits and become economically solvent again.

Keep this in mind. The average wage  (according to some analyses) of a federal employee is about $100,000 per year. That is a recipe for disaster. Federal employees produce nothing that can be sold at a profit, therefore all fall under the category known as indirect labor - labor that cannot pay for itself. This type of labor is what companies try to eliminate or at least keep to a bare minimum. Indirect labor merely adds to government overhead, which increases costs/taxes and doesn't add anything to the gross domestic product.

As of January 2009, there were 2,748,978 civilian federal employees in U.S. government, according to the Federal Employment Statistics published by the U.S. Office of Personnel Management. Employees with security agencies (CIA, NSA, etc.) as well as the Military and National Imagery and Mapping Agency are not included.

So what should we do? First, cut all federal employee wages, with the exception of the CIA, NSA, etc., as well as the military, National Imagery and Mapping agencies, by 15 percent immediately. That will save $41.235 billion per year or $412.346 billion over 10 years even without any reduction in federal employees. In addition, government pensions and benefits (except the aforementioned) must be reduced to levels commensurate with industry standards.

I also strongly suggest a 25 percent reduction in federal employees once feasibility studies are completed by an independent agency or agencies. Such a cut would reduce the number of federal employees by 687,244, bringing an annual savings of $68.724 billion or $687.245 billion over 10 years.

The total taxpayer savings for these reductions would be $120.268 billion per year or $1.203 trillion over 10 years. Imagine the message that would send.

How many of you have gone to work one day, only to find yourself being called into the office to receive a pink slip? No one, including your employer, likes to be in this situation. But in order to remain in business, drastic measures like these are, unfortunately, necessary at times

We all know too well how the size of government directly affects the economic well-being of America. Government must be reduced wherever possible, spending must be reigned in and waste eliminated.

The shell game that's being played by our elected representatives must end. If it doesn't, America as we know it will become nothing more than a pawn in a game of cat and mouse where there are no winners, only losers.

Steven Rathje of Cedar Rapids, former candidate for Congress, is founder/CEO of International Procurement Services Inc. and The Genesis Group Inc. Comments: srathje@ipsinc-usa.com