Please allow me to explain why these provisions are impractical and unfair when applied to service personnel.

The fifty (50) mile requirement governing the listing of deductible moving expenses clearly penalizes the military transferee. In the first instance, military personnel have almost no choice as to the selection of duty station. Therefore, why should they be penalized for moves over which they have no jurisdiction?

ving aboard a naval vessel homeported in "orfolk, Virginia

For example, a man can be ser

he has his family residing in

lle is

civilian housing in the Norfolk area because they are not entitled to government quarters he completes his tour of shipboard duty (ranging from an average of three to six years depending on his particular rate) and applies for a normal tour of shore duty. assigned shore duty at a naval base in the Norfolk area. He is entitled to available government quarters and the government moves him into these quarters. Under the IRS lawyers' strict interpretation of the law he must report the government's cost of his move as gross income but because his transfer from job to job did not exceed fifty miles, he cannot take any moving expenses deductions!

Such a decision, in fairness to military personnel, could result in the monitoring of future permanent changes of station to assure they exceed the fifty mile requirement and thus increasing the expenditure of military transfer funds and netting no gain in government revenue.

The provision that a person must be a full-time employee for at least thirty-nine (39) weeks after arrival at the new job location to be able to deduct moving expenses is equally ridiculous! The military training school system and curriculums in the vast

majority of the cases are based on less than thirty-nine week courses. In fact, the Comptroller General has ruled that any school course in excess of twenty weeks must be treated as a permanent change of station. Surely you cannot expect the military services to completely revise their training and educational system to comply with this interpretation!

The 39 week provision also discriminates against those military retirees who do not seek full-time employment upon retirement from active duty. That of the Vietnam veteran who is totally disabled and in accordance with current law is unemployable? report his travel funds, real and in kind, as gross income and remain unable to take the

Must he

legal deductions because he cannot fulfill the 39 weeks full-time employment provision?

Very frankly, I could continue to cite the impractical and inequitable implications of strictly interpreting the new law for many more rages. But rather than do that I ctte the well known Court of Claims case, Clifford Jones v. United States (1925) wherein the opinion was rendered:

"Income tax: quarters; commutation of quarters. Quarters furnished to officers of the Army in kind and commutation of quarters paid to them where quarters cannot be furnished in kind, are allowances and not compensation within the meaning of the laws of Congress imposing the income tax."

This opinion further stated the Congress has recognized for military personnel a distinction between PAY and ALLOWANCES.

On the basis of this case, the Internal Revenue Service for the past forty-five years has permitted military personnel to exclude from gross income: quarters allowances, uniform allowances, subsistance allowances, overseas temporary lodging and cost of living allowances, family separation allowances and personal money allowances for senior flag officers.

The Commissioner of Internal Revenue Service has recognized the inequity of a strict interpretation of the law as it would be applied to military personnel. He has graciously and wisely declared several moratoriums on the application of these provisions of the law to military personnel in the hopes that the Department of Defense and the Congress would clarify the law by enacting new language. To date, the law has not been amended and the Internal Revenue Service is becoming impatient. Since almost six years have elapsed, we

can appreciate his impatience. Therefore, we urgently request that this Committee act with dispatch in amending the law to provide exemption for military personnel under the provisions cited.

CONCLUSION

Mr. Chairman, the members of the Fleet Reserve Association sincerely feel that many of our current tax laws are inequitable. We cannot understand why our tax system unfairly

places the burden of federal revenue on the middle income taxpayers of our society. It

seems strange to us that persons who are in the highest incone brackets pay proportionately less taxes, if any, than those in the middle and low incone brackets. It would appear that our Federal government is placed in the reverse role of Robin Hood, that our tax laws are designed to rob the poor to give to the rich.

Therefore, we earnestly solicit your support in maintaining the status quo of the tax provisions regarding retirement income credits and sick pay exclusion, and to correct the inequities relating to moving expense provisions as they pertain to military personnel. On behalf of the 124,122 Shipmates of the Fleet Reserve Association, I thank you for giving us this opportunity to appear.

I am Colonel George F. Hennrikus, Jr., United States Air Force Retired, Chief Legislative Counsel of The Retired Officers Association (TROA), which has its National Headquarters here in Washington at 1625 Eye Street N. W. Our Association a membership of over 216,000 retired, former and active duty officers of the seven uniformed services. I also represent the Retired Enlisted Association (REA) whose headquarters is in Colorado Springs, Colorado.

has

The opportunity to provide our views on those elements of the Federal Income tax law which are of significance to the uniformed services retiree is very much appreciated. I intend to address three features being reviewed by your Committee. They are: retirement income credit, disability pay exemption, and the sick pay

exclusion.

But before I do, I respectfully request that this Committee give careful consideration to a general tax exemption of some portion of military retired pay similar to that proposed by Mr. Annunzio for all retirees in H. R. 194. Of the forty States which presently levy an income tax, seven exempt all retired pay and sixteen offer exemption ranging from $2000 to $6,000.

Such an exemption would serve as a symbol of National gratitude for honorable

service in the defense of the Nation and as an added incentive to a full career in

the Uniformed Services. In the development of a volunteer force over the past few years, there has been a tendency to equate the Services with private industry and to assume that personnel policies of the private sector can now be adapted to military manpower management. In our estimation, this is wrong.

If we are to continue to attract responsible and responsive people to our Uniformed Services, we must offer the proper incentives, and these are not the

same incentives that attract individuals to private industry. Service and sacrifice are still key factors for the military professional. If these are ever replaced

by a work contract that merely calls for a given standard of work over a specified

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period of time, we will no longer have a viable defense establishment.

Retirement Income Credit

From its inception in 1954, through 1962, the retirement income credit provision corresponded approximately with the Primary Social Security Benefit. Since 1962,

when the base amount was increased from $1200 to $1524, Social Security benefits have increased substantially. The current maximum social security benefit for an Furthermore, present law prescribes automatic

individual worker is $4100 per year.

cost of living adjustments.

We strongly recommend, at the very least, that the retirement income credit base be increased to $4100. A preferable alternative would be to fix the amount at $5000, as proposed by Representative Bob Traxler in H. R. 16580 during the 93rd Congress. This latter alternative would help the retiree cope with inflation and provide a cushion for projected increases in the Social Security maximum. Disability Retired Pay

Our associations support the tax exemption now applied to military disability retired pay under Section 104 (a) of the Internal Revenue Code. This entitlement has been a part of our tax law since 1942. Undoubtedly, our entry into World War II and

the return of the first casualties from that war had a great deal to do with its enactment into law. The fact that our armed forces are not, at the moment, engaging an enemy does not change the basic principle underlying the exemption: To give material recognition to the individual whose career and life expectancy has been shortened due to military service.

Any consideration of military disability brings to mind allegations made a few years ago to the effect that the administration of the disability retirement system had become too liberal, particularly in the case of some senior officers. Whether these charges were true or not, I want to remind this Committee that disability ratings are generally determined on a fair and equitable basis. Any misuses of the system represent rare exceptions in its administration, and should be dealt with on a case by case basis.