Discretionary Spending

Function 050 - National Defense

Cap Increases in Basic Pay for Military Service Members

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars		2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	2021– 2025	2021– 2030
Change in Spending
	Budget authority	0	-0.4	-0.9	-1.5	-2.0	-2.6	-2.8	-2.9	-3.0	-3.1	-4.8	-19.2
	Outlays	0	-0.4	-0.9	-1.4	-2.0	-2.6	-2.8	-2.9	-3.0	-3.1	-4.7	-19.1

This option would take effect in January 2022.
About 30 percent of the savings are intragovernmental transactions and thus would not reduce the deficit. Such transactions would transfer resources from one category of the budget to another: Capping increases in basic pay would lower the Department of Defense’s payments for retirement accruals and Social Security contributions, but those lower payments would reduce federal receipts by an equal amount and thus would fully offset the savings.

Basic pay is typically the largest component of military service members’ cash compensation. Under current law, the annual pay raise for service members is, by default, set to equal the percentage change in the employment cost index (ECI) for wages and salaries of workers in private industry. Lawmakers have sometimes enacted pay raises that are larger or smaller than the default adjustment.

This option would cap basic pay raises for military service members at 0.5 percentage points below the increase in the ECI until 2027.