I know this is a personal finance blog and I said I would not be political but this is not really a blog on politics or either political party but on taxes and working federal employees which I am one. Last week there was a series of articles on various sites talking about federal employees and the pensions we may or may not receive when we retire. While most federal workers are now under the FERS system which relies on a smaller pension that previous federal workers who were under CSRS those hired prior to 2012 contribute 0.8% of our pay to our pension which translates to a percent for each year we work until we retire. Now we are not entitled to the full pension unless we work 30 years and reach age 57 in my instance. Now in theory if you worked 40 years you would receive 40% of the average of your highest three earning years. If you retire after 30 years it would be 30% of the high three. Those are the conditions in which I was hired almost 15 years ago. Now in addition to my pension I also pay social security taxes like most working Americans and we have a version of a 401(k) called the Thrift Savings Plan.
For those federal employees hired in 2013 they will not pay the 0.8% for their pension I pay but rather 3.1% and those hired next year can expect to pay 4.4% for the same pension benefits I will receive. Provided Congress does not do away with the entire pension plan in its entirety. Now add these additional costs to fund our own pensions with the fact no federal employee has had a cost of living adjustment since President Obama was elected to his first term the advantages of being a federal worker are disappearing and soon I think many federal employees will seek employment in the private sector. And in the case of new hires it will become harder for the federal government to attract high quality employees as working in the private sector may end up offering better benefits. At one time government jobs were clearing better than private sector jobs but I am not so sure now days. My friends who work in the private sector pay social security taxes the same as me, they have 401(k) plans many with matching the same as me, and most have competitive insurance benefits as well. Their pay is in many instances better than mine for similar work and education and while my pay has been stagnant for going on 5 years many of them have seen small raises in their income. Now the only real benefit to having a federal job is the small pension and if you make it to full retirement you are able to keep your health insurance which to me is a big plus. But it is also a big expense for the government so I can see Congress going after that benefit at some point in the future as well.
Now I am sure you are asking yourself why should I care about my problems? Well here is a second little bit of information that I came across just this week on a way for the very wealthy to pass money in large sums to their heirs untaxed. Sheldon Adelson who is a major shareholder in the Las Vegas Sands since 2010 has given away approximately $8 billion and has not paid any gift taxes on these funds. Now under the current tax laws the most a married couple can give in gifts before a gift tax takes affect is $10.5 million excluding split gifts of $28,000 a year to individuals under the annual exclusions for gift taxes. Now the last time I checked $8 billion is a lot more than $10.5 million and it would still take a lot of $28,000 gifts to reach that amount in the last three years. But using a tax loophole that Congress and the IRS are both aware of called a grantor retained annuity trust or GRAT the very wealthy can pass millions or in many cases billions on to their future heirs totally tax free. Now had Mr. Adelson paid the required gift tax it would have been about $2.8 billion dollars and the IRS estimates it has lost about $100 billion in taxes due to these GRATS since 2000 alone.
So why is it that Congress and politicians in general allow the very wealthy to escape taxes while it is determined to balance the budget on the backs of the federal employee and other middle class Americans? How is it fair to for me to go 5 years without a cost of living raise and these individuals pass billions on to their heir’s tax free? How is it justified to possibly change the rules of federal pensions to help balance the budget while it allows billions in possible taxes to go untaxed? It seems to me Congress is not looking out for the backbone of the federal government which is the hard workers and not the elected officials or the wealthiest’s lobbyists. It also seems Congress is willing to sacrifice its own workers in the name of a balanced budget while it allows the very wealthy to pass large sums of money tax free. Regardless of if you are a federal employee or not this should be a point of concern for all middle class working Americans.
