Servicemembers are in line for their biggest pay raise since 2003 next January, but lawmakers and advocates are questioning whether that will be adequate to keep military families in good financial health.
That’s because the formula used to calculate annual pay hikes doesn’t take into account issues like short-term inflation spikes. The Congressional Budget Office has predicted a 6.1% jump in the consumer price index this year, but none of that extra expense is built into the military pay raise formula.
So, by the time troops see that extra 4.6% in their paychecks in seven months, their basic household expenses may have already ballooned to well above that rate.
“I believe that we should be able to get more flexibility and agility with military pay,” said Dan Merry, vice president for government relations at the Military Officers Association of America.
“This pay raise [proposal] is going to be woefully short of the inflation rate. And if we just address it in the annual authorization bill, it may not be enough.”
The pay raise dilemma is expected to gain extra attention next week as the House Armed Services Committee unveils the first draft of the annual defense authorization bill, a sweeping military policy measure that contains language setting military pay rates.
The White House earlier this year proposed a 4.6% raise for troops, but House members have already hinted they may be looking at a significantly higher mark out of concern that pay levels may not be sufficiently robust to meet recruiting and retention targets.
While the total military compensation package includes things like housing allowances and medical benefits, advocates have long argued that military pay plays a critical role in force health because it affects nearly every aspect of troops’ financial lives.
Since 2006, military pay raises have been tied to the Employment Cost Index, a quarterly economic survey conducted by the Bureau of Labor Statistics that tracks growth in civilian sector employee compensation.
The idea behind the link was to ensure that military paychecks remain competitive with private-sector pay. Lawmakers have deviated up and down from that amount slightly over the last two decades, but have mostly stuck with the formula.
“The primary challenge here is that the ECI is backwards looking,” said Seamus Daniels, associate director for defense budget analysis at the Center for Strategic and International Studies. “So, they set the 2023 pay raise based on where the ECI stood in October of 2021. So, when it goes into effect, it’s out of date at that point. "
This year’s pay raise was 2.6%, equal to what the federal formula said it should be based on economic conditions in fall 2020.
For junior enlisted troops, it means about $670 more this year in take-home pay. For senior enlisted and junior officers, the hike equals about $1,300 more. For an O-4 with 12 years service, it’s more than $2,300 extra.
Those are significant boosts, but might not be enough to offset higher gas and grocery costs seen by many military families in recent months. The Labor Department said the inflation rate for the 12-month period ending May 1 was 8.3%.
By the time the next pay raise kicks in, it, too, could be substantially below what servicemembers need to survive.
Lawmakers have approved a midyear pay raise in the past to deal with similar disparities. In April 2007, some enlisted and warrant officers received a second, targeted pay raise of 2.4% on top of the military-wide 2.2% raise that went into effect three months earlier.
Both Merry and Daniels said that may be an idea for lawmakers to consider again this year, and in other years with significant inflation increases.
But doing that is expensive. An increase of just 0.5% can amount to more than $3 billion in compounding personnel costs over five years, according to Defense Department statistics. Additional midyear pay boosts up that even more, since the subsequent year’s pay raise builds on previous ones.
Beth Asch, a senior economist at the Rand Corp., said that may not target the military inflation problems as much as other options.
“There are contingencies already,” she said. “The services have the authority to reprogram dollars to bonuses to deal with recruiting and retention problems. And there are policy levers they can use to make sure they have what they need to maintain readiness.”
The other challenge in a midyear pay adjustment is congressional gridlock. Lawmakers over the past decade have rarely passed any of their appropriations bills by the start of the new fiscal year, (Oct. 1. A midyear pay raise would require a midyear influx of new money, and timely action from lawmakers to ensure that military budgets aren’t disrupted.
Still, Merry said he thinks Congress needs to look at a “wellness check” for military families’ finances more frequently than just once a year. Last fall, the Defense Department boosted housing allowances for 56 markets with soaring rent rates. Merry said similar moves could be made to help with basic pay, too.
“Right now, with the ECI formula, it’s 15 months before they can respond,” he said. “It’s not the state of the economy now.”
Asch has noted the shortcomings of the ECI-based formula in past work as part of the Quadrennial Review of Military Compensation.
She and others have pushed for a switch to a formula based on the Defense Employment Cost Index, a new figure which takes into account private-sector wage research that accounts for workers’ demographics, such as age and experience.
The next compensation review report could address the issue again. But that is due out in early 2024, after at least two more cycles of military pay raise debates have been completed.
Meanwhile, Asch said one of the reasons that Congress hasn’t come up with solutions for the military inflation concerns is that the private sector hasn’t fully addressed the issue either.
“Inflation takes a while to incorporate into the private-sector wages,” she said. “As a military member, you could look and say, ‘my pay raise isn’t keeping up with my cost of living.’ But on the other hand, if you jump to the private sector, it’s not really catching up there yet either.”
House Armed Services Committee officials are expected to unveil their military personnel proposals for fiscal 2023 next Wednesday. Senate Armed Services Committee members have a similar mark-up of their defense authorization bill draft scheduled for a week later.
Leo covers Congress, Veterans Affairs and the White House for Military Times. He has covered Washington, D.C. since 2004, focusing on military personnel and veterans policies. His work has earned numerous honors, including a 2009 Polk award, a 2010 National Headliner Award, the IAVA Leadership in Journalism award and the VFW News Media award.