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Obama aims to unfreeze federal pay in 2013 budget

Obama calls on Republicans to extend the payroll tax cut in Washington
Obama calls on Republicans to extend the payroll tax cut in Washington

WASHINGTON (Reuters) - President Barack Obama will propose lifting a federal pay freeze in his upcoming budget plan to give government employees a 0.5 percent salary rise, a White House official said on Friday.

The increase, which would end a two-year freeze imposed in 2010, will be outlined in the president's 2013 budget, according to an official in the White House's budget office. The budget is expected to be released in early February.

"A permanent freeze is not good policy," the official said, noting the impact of the two-year pay hold-down on the 2 million civilian workers on the federal payroll.

"There are tight constraints on our spending and we're trying to find the best way to accommodate those pressures," the official said.

With his proposal, which requires lawmakers' approval, Obama is challenging Republicans in Congress who have sought to extend the pay freeze through September 2013.

Republicans want to use the estimated $26 billion savings to help cover the $120 billion cost of extending a payroll tax cut through the end of this year.

Democrats in Congress have opposed saddling federal workers with another annual pay freeze, but they have signaled a willingness to consider Republican proposals that would trim some pension benefits for federal workers to help cover the cost of the payroll tax cut.

In coming weeks, Democrats and Republicans in Congress will try to reach a deal on extending the payroll tax cut through the rest of this year. They face a February 29 deadline, when a stop-gap measure enacted late last month amid deep divisions among Republicans, expires.

There is a range of ideas under negotiation, in addition to freezing federal pay, to offset the cost of extending the payroll tax reduction.

Obama's 0.5 percent pay increase proposal compares with a 1.7 percent pay raise for fiscal 2013 mandated under the law - unless the president takes action to change it.

That statutory increase reflects private-sector wage growth measured by the employment cost index.

A second White House official said that only raising pay by 0.5 percent would save $2 billion in 2013, compared with having wages go up by the statutory amount. The incremental cost of increasing wages by 0.5 percent versus leaving them frozen would be $800 million in 2013, that official said.

(Reporting by Alister Bull; and Richard Cowan; Editing by Peter Cooney)

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