COLA likely to drop amid U.S. economy problems
September 22, 2008
For the second year in a row, the amount of money the average American has left after paying for housing, taxes, life insurance and gifts has shrunk, leaving consumers with less spendable income than they had in 2000.
American troops stationed overseas should be worried by the news, and by the latest U.S. inflation data, which shows stateside prices continue to rise at a faster rate than those in Europe.
"COLA (cost-of-living allowance) is intended to provide you economic parity with the States," said Stephen Westbrook, director of the Per Diem, Travel and Transportation Allowance Committee. "I force you to go overseas; I cannot expect you to suffer financially from being assigned there.
"So what I owe you is additional compensation to make you whole — the same as your counterpart in the 48. No better and no worse. It’s the ‘no better’ part that folks get confused over."
New data collected by the U.S. Bureau of Labor Statistics shows that the average American family is spending less money — and has less money to spend — on things like food, recreation, clothing, alcohol, tobacco and other items that make up spendable income. That’s the portion of total income left over after paying for housing, taxes, life insurance and contributions to such things as retirement plans and savings accounts. Families that make more money generally have more spendable income.
COLA is intended to bring the spendable income of American families overseas up to par with their stateside counterparts. The Per Diem committee uses the stateside income data to help determine how much COLA a family of a particular size and income level should get.
The new BLS statistics indicate that all but the lowest-paid troops will see a slight COLA reduction starting Oct. 1, when the new data goes into effect.
For example, spendable income for an American whose annual compensation falls in the range of $48,000 to $50,999 — roughly the total of base pay and money for food and housing given an E-6 with more than 10 years’’ service and two dependents —– has dropped from $26,400 to $26,200, according to the new data.
So even if that troop’s COLA rate were to stay the same, his actual COLA would drop slightly to keep him even with his Stateside counterparts. If, say, the COLA rate in his location were 30, his COLA would fall from $7,930 to $7,860 a year.
On average, the new data results in a COLA cut of about $9 a month —– though the lower-ranking you are, the smaller the dollar value of the cut, said Westbrook, who was in Germany this week to meet with military officials and help train personnel who will conduct a retail price survey for the country beginning in October.
That survey, according to Westbrook, is also likely to mean less COLA for American troops in Germany, though that’s not yet a sure thing. However, economic data from the U.S. and Germany support his suspicion.
The U.S. consumer price index, a rough measure of the average cost of living and inflation, is up 5.4 percent from a year ago, according to the U.S. Bureau of Labor Statistics. The consumer price index for Germany, meanwhile, is up just 3.1 percent over the same period, according to the country’s Federal Statistical Office.
What that means is prices in the U.S. are going up faster than prices in Germany, a situation that will deflate COLA payments.
The data collected by the retail price survey teams — including 120 types of goods and services such as food, clothing, recreation and car care — will determine whether a change to COLA in Germany is warranted.