Business Ethos Blog

Is Congress for Real?

Dr. David Mielke is the Retired Dean of the School of Business at Eastern Michigan University


 It has not even been a month since the Republicans and Democrats agreed to some budget cuts and revenue and spending increases to eliminate some of the sequester cuts and pass a two year budget.  Some cost savings were to occur from changes in military pensions, that is reduce the cost of living adjustment (or Cola) for veterans under the age of 62 by one percentage point below inflation.  That was to save $6.3 billion over 10 years.  I know it is hard to believe, but there is already a move in Congress to restore the full Cola to all military retirees.  Is this the “Right Thing to do?”  Let’s look at some issues:

1. Military personnel qualify for a pension after 20 years of service as early as age 38 and the average retirement age is 44.

2.  The Cola cuts apply to those retirees under age 62.  Once they hit age 62, the full Cola goes into effect.

3. The bill does not take effect until 2016.

4. Most veterans get a full-time job after retirement and continue to collect their full military pension.

5. Some say the military pension changes are only fair considering that the bill requires that civilian employees will have to contribute 1.3 percentage points more of their salary to pensions.  The military do not contribute to their pensions.  On average, Americans in the private economy pay 20% or more of their health care costs.

6. Co-pays and premiums in the military’s Tricare plan have stayed at 1994 levels and are in drastic need of revision.

7. Military health care costs have skyrocketed.  Overall personnel costs for he military consume 33% of the total defense budget.  If current projections continue, at the current pace total personnel spending will consume the entire Pentagon budget by 2039—only 25 years from now.

8. Some critics of the Cola cut say the decrease breaks a government promise to veterans, but they were promised a pension after 20 years, not a specific inflation formula.  Most private defined benefit pensions, promise a specific monthly payment and have no inflation adjustment.

9. The Pentagon brass endorsed the cuts as a way to maintain adequate budgets for current readiness and new weapons.

10.  The Pentagon asked Congress in 2012 to sign off on a broader overhaul of Tricare.  Instead, Congress appointed yet another commission.  They are to issue a report this spring.

11. We have multiple examples of what happens when personnel costs consume large proportions of military budgets.  It Italy 75% of their budget goes to personnel costs, twenty of 27 NATO members spend more than half of their defense budgets on personnel, leaving little money for readiness or equipment.  They may be able to get away with this because they can depend on the US to fill the gap.  But what happens when the US will not b able to fill the gap?


Should Congress reverse the Cola cuts to military pensions to those under age 62?  Maybe the real threat to Pentagon budgets is not the sequester or budget cuts but rather the politics of entitlement?  This is not the “Right Thing to do.”  There is no change for those over age 62 and we must remember that retired veterans are drawing a pension on average at age 44 while most likely, working a full-time job.  What is wrong with Congress after congratulating themselves on a budget deal, to reverse part of that deal less than a month later?  How can we take them for real?