Bloomberg News

Obama’s Voluntary 5% Pay Cut Joined by Lew, Kerry, Holder

April 04, 2013

U.S. Secretary of State John Kerry, Treasury Secretary Jacob J. Lew and Attorney General Eric Holder today followed President Barack Obama’s decision to refuse a portion of his salary to show solidarity with furloughed government workers.

Obama will send a check to the Treasury for 5 percent of his $400,000 annual salary each month federal employees are forced to take unpaid leave because of across-the-board budget cuts under a process known as sequestration, a White House official said yesterday.

Kerry will donate 5 percent of his pay to “an appropriate charity that will benefit employees of the State Department,” Victoria Nuland, the department spokeswoman, said today.

Lew’s office said he would donate an unspecified amount of his salary to charity.

“The Secretary will contribute a portion of his salary to non-profits that support people and programs that have been adversely affected by the sequester,” Treasury Spokeswoman Natalie Earnest said. The Treasury Department didn’t identify which programs would benefit from Lew’s donation.

Holder, appearing on the nationally-syndicated radio program the “Tom Joyner Morning Show” said he will also return a percentage of his compensation if Justice Department employees are forced to take unpaid leave.

Holder’s Support

“I’ll say this, what the president did I think is right, given the fact that some federal employees may have to be furloughed, which means a pay cut,” Holder said today. “If that happens in the Justice Department, that is certainly something that I would consider. We are working to try to ensure that our workforce does not have to be furloughed.”

Obama’s salary give-back -- which would total $20,000 -- represents the level of cuts being made in non-exempt, non- defense discretionary spending under the budget reductions known as sequestration, said the White House official, who wasn’t authorized to speak on the matter and asked not to be identified.

Like members of Congress and Cabinet officials, the president’s salary is set by law and can’t be reduced or raised while he’s in office.

Two Cabinet-level officials, Defense Secretary Chuck Hagel and acting Environmental Protection Agency Administrator Bob Perciasepe, had said they would take pay cuts.

Kerry’s Choices

Kerry is “still looking at the best choice” of recipients, Nuland said, mentioning charities for children of State Department employees or families of those injured or killed in the line of duty. The former Massachusetts senator was among the richest members of Congress, with a 2011 net worth of at least $181.5 million, according to the Center for Responsive Politics in Washington.

Democratic Senator Mark Begich of Alaska, up for re- election in 2014, released a statement yesterday saying he will return part of his salary and furlough some of his staff.

“There is no reason that members of Congress shouldn’t feel the pinch like everyone else,” Begich said. “This won’t solve our spending problem on its own, but I hope it is a reminder to Alaskans that I am willing to make the tough cuts, wherever they may be, to get our spending under control.”

U.S. Senators are paid $174,000 a year, the same as in 2009, according to a Congressional Research Service report. The majority and minority leaders get $193,400 annually, as does the president pro tempore, it shows.

No Furloughs

Cabinet secretaries and other senior agency officials appointed by the president can’t be forced to take unpaid time off because “they are considered to be entitled to the pay of their offices solely by virtue of their status as an officer,” rather than by the hours they work, according to the Office of Personnel Management documents.

“The president has decided that to share in the sacrifice being made by public servants across the federal government that are affected by the sequester, he will contribute a portion of his salary back to the Treasury,” Jay Carney, a White House spokesman, said in a statement released yesterday.

Lawmakers in the House of Representatives also are paid $174,000 a year, while those in leadership roles get more. Democratic Leader Nancy Pelosi of California collects $193,400, while Speaker John Boehner, an Ohio Republican, receives $223,500 annually, according to the research service.

The White House hasn’t said whether Vice President Joe Biden, who makes $230,700, would return part of his pay.

First Check

Obama will write the first check this month and will continue through the end of the fiscal year on Sept. 30 or until the sequestration is replaced, the administration official said.

The sequestration process will slice $85 billion out of the federal budget through the end of September, split almost evenly between defense spending and discretionary social programs.

Hagel, who makes about $199,700 a year, according to another research service report, announced his decision to forfeit pay on April 2. Deputy Defense Secretary Ashton Carter also has offered to return part of his salary.

The Pentagon must cut $41 billion in spending over the fiscal year because of sequestration. Defense officials have said the reductions may require the agency’s 750,000 civilian workers to take as many as 14 unpaid days off over that period.

Donated Money

The EPA’s Perciasepe has donated the equivalent of 32 hours of his salary to the Federal Employee Education and Assistance Fund, according to Alisha Johnson, a spokeswoman. That is the amount of time employees will be furloughed through June 15. The fund offers emergency assistance and tuition aid to the families of U.S. workers.

Citizens who want to make a donation to the government can do so through a 170-year-old account called “Gifts to the United States,” run by the Treasury Department, according to Anthony Coley, an agency spokesman. Pay returned by public officials would be considered donations to the government.

Voluntary payments to reduce the national debt can be deducted from taxes as charitable contributions, according to the research service. At the 39.6 percent top federal tax rate, Obama may get $7,920 in tax relief by deducting the $20,000 in returned pay.

Carney told reporters today that the president wouldn’t claim the deduction when he files his 2013 tax return, due next year.

Economy Cools

As the sequestration cuts have begun, some signs have indicated the U.S. economy may be starting to cool. The Institute for Supply Management said yesterday that its non- manufacturing gauge declined to 54.4 last month from a one-year high of 56 in February, the slowest pace of growth in seven months, and companies added fewer workers than forecast.

The Standard & Poor’s 500 Index (SPX) of U.S. equities retreated from a record close on April 2 to end at 1,559.98 in New York, while an index of 10-year Treasury note yields declined to 1.76 percent at 5 p.m. New York time from 1.81 percent late yesterday, according to Bloomberg Bond Trader prices.

Congress mandated $1.2 trillion in across-the-board spending cuts -- the sequestration -- spread over nine years, as part of a 2011 deal to increase the U.S. debt limit.

The president has said he’ll continue to seek a long-range deficit reduction agreement with Republicans. He plans to have a dinner meeting with about a dozen lawmakers from the party on April 10 to discuss a potential budget deal.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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