PAYING TOMORROW'S MILITARY
September 1, 2006
All workers receive a mix of immediate cash, deferred cash and non-cash compensation. But for military personnel, noncash and deferred benefits make up a much larger share of the mix than they do for private-sector or other government workers, says Cindy Williams, a principal research scientist for International Studies at the Massachusetts Institute of Technology.
- About 51 percent of every military compensation dollar goes to noncash or deferred benefits.
- For civilian government workers, these benefits account for 33 percent.
- In the private sector, such benefits typically account for only 18 percent of total compensation.
Such large differences in the structure of compensation relative to that of other U.S. employers can make it difficult for service members to see the full value of their total compensation, says Williams, thus weakening the competitiveness of the armed services as employers.
In addition, such benefits are extremely inefficient from an economic point of view:
- Subsidized housing, grocery stores and day care centers cost taxpayers substantially more than they are typically worth to either the individuals who receive them or the services as institutions.
- The Defense Health Program's (DHP) comparably low premiums and copayments lead to overuse and migration out of civilian plans into DHP's, costing taxpayers hundreds of millions of dollars a year.
In response, says Williams, decision makers should consider the following recommendations:
- Convert in-kind benefits to cash.
- Increase the beneficiary share of cost for the DHP.
- Improve the cost-effectiveness and responsiveness of government-operated businesses providing goods and services to military personnel and families.
- Make the costs of in-kind benefits more transparent.
Source: Cindy Williams, "Paying Tomorrow's Military," Cato Institute, Summer 2006.
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