Monday, February 25, 2013

What if your wages were sequestered?

An employee who makes $50,000 per year goes in for a meeting with his boss.  The boss looks glum and tells the employee he must cut his pay by $13,238 as he has no choice, he is being forced to do it by the Board.  The employee begins to sweat trying to figure out how to pay his bills on only $36,763 and panics, shouting at his employer how bad this is.  “I can’t lose $13,000….”

The employer takes pity on the employee and says … “Let me explain.  You do not understand the new (Washington) math.  The cut in your pay is indeed over $13,237 but that is over 10 years.  Also, it is out of planned spending not on actual spending.  You see I have planned to give you a 10.3% increase each year and I now find that is impossible so I have to cut somewhere.” The employee notices a tear forming in the employer’s eye. “The Board is making me cut a total of 2.4% of my planned spending and that means I can only increase your current salary by $3,829 and not the $5,152 I had intended.  Over 10 years that is a $13, 236 cut in your pay.  You do know it’s the evil Board, not me don’t you?“ 

The employee now really confused says, “You mean you are only cutting $1,324 next year and you are not cutting it from my $50,000 pay, but from my $5,152 increase you had planned to give me and which I have not even yet received?”

“Yes,” the employer replies with much remorse, feeling so bad he has to hurt his employee by cutting his pay.  The tears are flowing now.

And the employee says, “So actually, you are not cutting my pay of $50,000 and you are INCREASING my pay by $3,829 next year?”

“Yes” says the employer, “I am so sorry to hurt you so much.  I know you will have to stop doing so much, maybe not be able to pay your mortgage, make your car payments, and send your kids to school.”  At which the employer bursts out in tears sobbing uncontrollably and wailing about the impending disaster to come.

The employee looks at the pathetic employer and states, “So this year I make $50,000 and next year you are going to pay me $53,829, a nice raise, but you think I am being cut $13,236 over 10 years because you can’t raise my pay as much as you want?”

“Yes” sobs the employer now on his phone begging the Board to avoid the cuts at all costs.  I am trying to tell them how much it will hurt you and all my other employees.
The employee rises and leaves the bosses office smiling and imagining the good an increase of over $3,800 is going to do.  

Now you understand sequester.  $3.6 trillion today is planned to be $6 trillion in 10 years, but $2.4 percent cut must be taken from the planned increase meaning that government spending will still increase.  The problem is that over 60% of the economy is entitlements and cannot be touched by the sequester and that means the cuts fall most heavily on federal expenditures that are discretionary.  Passing smarter cuts and entitlement reform could go a long way, but as long as our “employer” wails and doesn’t act, we are stuck.  But wait, aren’t we the employers of them?

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