President Barack Obama wants to extend the temporary payroll tax cut into 2012, and congressional Democrats and Republicans agree. They disagree over how to pay for it.
Democrats propose raising taxes on the financially successful. This would discourage potential entrepreneurs from starting new enterprises—not the best idea when job creation remains stuck near record lows. Republicans propose reducing the federal workforce by 10 percent and extending the President’s federal pay freeze for another three years.
The GOP approach has many merits. Unlike tax increases, less government spending does not discourage job creation. It also recognizes the reality that the recession has largely bypassed the federal government. Since the recession began, the federal bureaucracy has swelled over 10 percent, while the average federal employee earns more than he or she would in the private sector.
However, this approach also has its problems. It paints with too broad a brush. The average federal employee gets premium pay—but this is an average. Some federal employees enjoy even more inflated pay, while others actually earn less than they would in the private sector. The government typically underpays its most productive and skilled workers. A pay freeze indiscriminately lumps underpaid workers in with overpaid bureaucrats.
Congress should consider a different approach. Virtually all federal employees get better benefits from the government they would in private industry. One benefit is almost entirely unique to the government: guaranteed job security.
Civil service regulations kick in once a federal employee passes a one-year probationary period. At that point it becomes incredibly difficult to fire the worker—the process can easily take years. Federal managers rarely fire anyone for poor performance. In many agencies, a federal employees is more likely to die on the job than get laid off.
This job security is very valuable, but taxpayers give it away for free. Rather than freezing pay, Congress should make federal employees who want tenure pay for it. Congress should give federal employees who pass their probationary year a choice: They can continue as at-will employees whose managers can easily remove them for poor performance, or they can buy job security through payroll deductions. The Heritage Foundation outlined the details of such a system in an earlier report.
This approach avoids the pitfalls of an across-the-board freeze. No federal employee would be forced to take a pay cut. The most skilled and productive federal employees would almost certainly decide not to buy tenure—they do not fear being accountable for their performance. Ineffective employees, however, would buy tenure in droves. They know they would lose their jobs if the government held them accountable for performance.
Charging for tenure cuts spending without penalizing all federal employees. Congress can pay for the payroll tax cut by scaling back the federal governments’ excessive employee benefits.