How To Cut Government Pay
By ALEX J. POLLOCK
Government employees on average have higher pay and bigger benefits than the private-sector employees who support them with taxes. This has become a well known fact.
When private firms run extended losses—spending more money than they take in—their employees must share in the necessary adjustments. But how about when governments spend much more than they take in, running huge and extended deficits? What should happen then? This is something Americans who work in private companies might consider while they file their tax returns over the next week.
Having had a long run of high growth and success, Ireland has now had a severe bust, the deflation of a housing bubble, and a financial crisis. Plus, its government is running big deficits. Sound familiar?
In response, the current Irish government budget takes these steps (translating from euros to dollars and rounding):
• Government employees’ salaries up to $40,000 will be reduced by 5%.
• The next $54,000 of salary will be reduced by 7.5%.
• The next $74,000 of salary will be reduced by 10%.
When these tranches are added together, this gets you up to salaries of $168,000. Government salaries over this amount may be subject to marginal reductions of as much as 15%.
This looks like a very sensible plan for nonmilitary government employees.
Ireland has already worked out the plan. All the U.S. has to do is implement it.
Mr. Pollock is a resident fellow at the American Enterprise Institute.
