disclosures, the Defense Department has issued new restrictive guidelines. Mr. Chairman, the nation has entered the era of an all volunteer Armed Forces. Proposals such as that included in the Draft that is here under study cannot, in the judgment of The American Legion, fail to have a deleterious effect upon the career incentive that is an essential underpinning of the new concept of military service. On the basis of that judgment, we strongly urge the retention of the present language of Paragraph (4), section 104 of title 26, which permits exclusion from gross annual income, payments of military disability retirement pay. Further, the outline of section 105, as it appears in the Draft here being considered, would seem to be directed at instances in which individuals may be advantaged by the application of the statutes and implementing regulations. In our judgment, the language of the Draft is not the equitable solution to the problem. We believe that strict and uniform application of reasonably drawn regulations will eliminate the occurrence of anomalous situations. In conclusion, Mr. Chairman, The American Legion respectfully urges upon the Committee, the retention of the consideration provided to retired members of the Armed Forces, by the existing language of sections 104 and 105 of title 26, United States Code. STATEMENT ON TAX REFORM OF WILLIAM B. GARDINER ASSISTANT NATIONAL DIRECTOR OF LEGISLATION BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE: My name is William B. Gardiner. I am Assistant National Director of Legislation for the Disabled American Veterans, whose Washington office is located at 1221 Massachusetts Ave., N.W., and I appear before you this morning to oppose any provisions of Tax Reform Legislation that would adversely affect the current status of VA disability compensation or military disability retired pay. For your information, Mr. Chairman, the Disabled "to American Veterans, which is now composed of nearly a half million active members, was chartered by Act of Congress on June 17, 1932. The law (PL 72-186), which incorporated the DAV, provided in part that the purpose of the organization shall be: uphold and maintain the Constitution and the laws of the United States; to realize the true American ideals and aims for which those eligible to membership fought, and to advance the interests and work for the betterment of all wounded, injured, and disabled veterans." While the DAV would not ordinarily have an official position in connection with the Tax Reform Legislation now (32) under consideration by your committee, Paragraph 5 of Section 7.10 of our National Constitution and By-Laws provides that: "In the absence of any mandate to cover any Tax Simplification and Reform of In view of this continuing mandate, the DAV is greatly concerned over the Administration's tax simplification proposals pertaining to changes in the "sick pay exclusion" which, in our judgement, would endanger the long standing income tax exemption for VA service-connected disability compensation, and specifically repeal the present tax exclusion for military disability retired pay. Never in our nation's history have these veterans' benefits been taxed and, in our considered opinion, it would make no sense for the Congress to provide such disability payments with one hand and then to reduce them by way of taxation with the other. We were, therefore, most grateful for the many letters received from members of this Committee assuring us that they have no intention of placing a tax on "veterans' benefits paid by the Veterans Administration." Few such assurances were received however with regard to military disability retired pay, and the members of our organization are still vitally concerned over the fate of those 64,284 officers and 95,355 enlisted personnel who are currently receiving their service-connected disability benefits from the Armed Services. Sick Pay Exclusion Under Section 105 of the Committee's 1974 tentative decisions with respect to "Changes in exclusions for sick pay and certain military, etc., disability pensions," the temporary sick pay exclusion was to be repealed generally. The exclusion for disability income was to continue to be available, however, to taxpayers under age 65, who are permanently and totally disabled. In such cases, the maximum amount that could be excluded as sick pay was to be reduced on a dollar-for-dollar basis by the taxpayer's income (including disability payments) in excess of $5,200 a year. These limitations were to apply to both military and civilian retirement disability payments but not to payments by the Veterans Administration which, incidentally, have never been eligible for the sick pay exclusion. In the absence of a National Convention mandate on this subject, the DAV has no official position in connection with the "sick pay exclusion" as such. We do not, however, consider the exclusion of disability payments as a "tax loophole," and we oppose with all the vigor at our command the unpublicized and unwarranted provisions of Section 105(b) of the 1974 draft bill of tentative decisions which would repeal Paragraph 4 of Section 104 (a) of Title 26, Internal Revenue Code. Military Disability Retired Pay As you know, Mr. Chairman, Section 104 (a) (4) of the Internal Revenue Code currently provides for the specific exclusion from gross income of: "Amounts received as a pension, annuity or similar Under present law, if a member of the uniformed services of the United States is retired for disability, part or all of his retired pay will be excluded from federal income taxation. The manner in which the retired pay is computed determines whether any of the pay is subject to federal income tax. If the member is receiving disability retired pay computed solely by multiplying his percentage of disability times his basic pay, all of his retired pay is currently exempt from federal taxation. If he chooses to have his disability retirement pay computed on length of service, however, the amount of his retired pay, which is in excess of the amount he would have received if he had elected to have his pay computed on the basis of his percentage of disability, is not excluded. Example: An officer, Grade 0-4, with 26 years' service, retires with a 40 percent disability. He elects to have his pay computed on the basis of his length of |