retired, and currently serving as the Director of Legislation for the Air Force Sergeants Association. On behalf of the thousands of members of our association, we would kindly request that our position on the proposals being considered by your committee on tax reforms be entered into the official record of hearings on the issue. RETIREMENT INCOME CREDIT For the many enlisted people who served a full career during the period, when active duty pay scales were low, any reduction of Retirement Income Credit would seriously impact upon their financial status during this period of inflation and high cost of living. We strongly oppose any tax reform measures that would reduce or otherwise eliminate the entire Retirement Income Credit provisions. In keeping with the current maximum Social Security benefit for an individual worker, we would strongly recommend that the Retirement Income Credit base for the military be increased to the same amount. THE SICK PAY EXCLUSION The current law which requires the military retiree to waive that portion of his retired pay for which he receives VA disability compensation is certainly an inequity. Those enlisted men and women who served a full career in the service of their country rightfully earned their retired pay. Those whose dedicated service resulted in a disabling injury should be compensated for such disability without having to "give-up" that portion of their retired pay. Reduction or the elimination of the "Sick Pay Exclusion" would once again penalize the military retiree having a service connected disability. Should those disabled retirees, who are able to perform some type of work, become ill resulting from their service incurred disability, tax relief for the period of such illness is certainly justified. Once again, we strongly oppose any attempt to eliminate this tax break for those having the need. MOVING EXPENSE TAX AS APPLIED TO MILITARY By virtue of the very nature of military service, the provisions of the 1969 Tax Reform Act, if enacted, would penalize the very people who must relocate according to military orders. The requirements to relocate at least 50 miles from the employee's former residence in order to deduct moving expenses, and the requirement for a person to be a full-time employee for at least 39 weeks after relocation will seriously affect many thousands of military members and their dependents. Those who would suffer the most would most certainly be the enlisted men and women of the Armed Forces. To date the IRS has waived this portion of the 1969 Tax Reform Act, and we would urge that such provisions be eliminated from the law as it pertains to military people. The life style and costs associated with moving during military service, for the greater portion of enlisted men and women, still requires payment over and above the current "Dislocation Allowance" provided by the Department of Defense. CONCLUSION The first "breech of faith" by our government occurred in 1958 when the principal of recomputation of retired pay was abandoned. Many enlisted members of our retired communities have suffered as the result of that action. Today, we are all witness to, and many are recipients of the erosion of many "promised" benefits to our military people. Then too, there is a proposal before the Congress to further reduce the present retirement system for those still serving on active duty in a career status. We would ask that during your deliberations on any Tax Reform Measure affecting the military, careful consideration be given to the above and no additional tax burden be placed on those who valiantly served and those still serving our nation throughout the world. If the military continues to be the "brunt" of the budget squeeze, while unions are bargaining and obtaining more and more benefits for their rank and file members, then the recent suggestion to unionize the military services can become stark reality. The future of national security for this nation would most certainly be seriously jeopardized. COMMITTEE ON WAYS AND MEANS, AD HOC RECOMPUTATION COMMITTEE, HONORABLE SIRS: A serious eye condition for which I am hospitalized in the New York University Hospital will preclude my personal appearance before your committee, July 18th as scheduled, and I am compelled to dictate this brief statement in lieu thereof. For more than 100 years military disability retired pay has not been taxed. It should continue to be free of tax. For as long as there have been armies, there have been veterans. Ever since the Romans first invented the word, the concept of community responsibility for those who served in battle has been constant. Our soldiers insured the birth and maintenance of our nation which demonstrates its gratitude by giving retired pay to those who were permanently incapacitated in line-of-duty. To tax this pay would be the same as taking away part of which the government believes a disability retiree is entitled to. Respectfully yours, D. GEORGE PASTON. STATEMENT OF JOHN A. LANCASTER, LEGISLATIVE DIRECTOR, PARALYZED VETERANS OF AMERICA Mr. Chairman and Members of the Committee: The Paralyzed Veterans of America is testifying today concerning the so-called "sick pay exclusion." We are concerned that the Committee may again have in mind proposed changes in the Internal Revenue Code that would repeal the exclusion for military disability retired pay. Virtually all of our 9,000 members receive no military disability. retirement pay, instead they receive Veterans Administration compensation or pensions. We are concerned, however, that if the goverment is allowed to tax military disability retired pay now, then they will start planning to tax compensation or pension. The PVA realizes that it is probably being unduly concerned and that Congress, in its infinite wisdom, would never consider anything so ludricrous. The Paralyzed Veterans of America does realize that the "sick pay exclusion" is a sometime abused tax break that may need some tightening. However, those abuses are basically an outgrowth of private industry and its programs. Those who have served and sacrificed in service for their country, and as a result of such service received a disability, should not be made to include compensation for a disability, regardless of what technical term is given that compensation, into their adjusted gross income. The folly of such taxation is obvious. The Paralyzed Veterans of America is also concerned, not only because the repeal of military disability retirement pay may lead to taxation of compensation and pension, but also because such a change to our tax laws will just amount to a greater erosion of those benefits that accompany military service. If that "service" is going to continue to be a special kind of "service" that provides the United States with national defense second to none, then Congress is going to have to start retaining some of the special benefits-be it the GI Bill or the exclusion from adjusted gross income of military disability retirement pay. STATEMENT OF DONALD H. SCHWAB, ACTING DIRECTOR, NATIONAL LEGISLATIVE SERVICE, VETERANS OF FOREIGN WARS OF THE UNITED STATES SICK PAY EXCLUSION The Veterans of Foreign Wars opposes modification or repealing RR 58-43, since the need for such is no different today than upon its inception 17 years ago and we are particularly fearful of the possible ramifications of reducing, dollar for dollar, disability income in excess of $5,200 per annum. MILITARY RETIRED PAY The V.F.W. opposes any modification of Section 104(a)(4) of the Internal Revenue Code that would alter tax exemption of military retired pay based on physical disability. This, since the former member had to be found unfit for the performance of duty as enunciated in Chapter 61, Title 10, U.S. Code, and such finding either prematurely terminated his career or placed restrictions on his ability to subsequently earn a livelihood. COMPENSATION AND DEPENDENCY AND INDEMNITY COMPENSATION PAYABLE BY THE VETERANS ADMINISTRATION The V.F.W. opposes modification of Section 104 (a) (4) of the Internal Revenue Code from which such tax exemption flows, since, historically, such benefit has been designed to provide relief for the impaired earning capacity of veterans disabled as the result of their military service. SUMMARY The V.F.W. is greatly alarmed by the mere fact hearings are being held regarding the above subjects. In view of past events we must consider an attack on any one disability benefit an attack on all similar benefits and fear the Office of Management and Budget already has a preconceived plan using the domino theory to first establish a precedent, then, attack all other federally and privately financed disability plans with the horrendous intent of eventually making inroads to alter the qualifications for tax exemption on disability compensation payable by the Veterans Administration to those with service-connected disabilities. STATEMENT Thank you for the privilege of presenting to this distinguished Committee the views of the Veterans of Foreign Wars of the United States regarding sick pay exclusion and disability income. My name is Donald H. Schwab and my title is Acting Director of the National Legislative Service of the Veterans of Foreign Wars of the United States. The additional information required by Committee Print No. 94-45, dated June 17, 1975, was previously furnished the Chief Counsel of the Committee, John M. Martin, Jr. SICK PAY EXCLUSION The authority for sick pay exclusion is an Internal Revenue Service ruling of 1958, identified as "RR 58-43." This ruling permits deductions of $100 per week on taxable income of military retirees retired for physical disability, but whose entire retired pay is not based upon such disability. Further, the recipient must neither subsequently be employed by the United States Government nor have reached "retirement age" based upon grade, length of service and/or actual age. The rationale for RR 58-43 was to assist those whose military careers were terminated prematurely by unfitting disabilities prior to completing a full career of 30 or more years over the difficult period of adjustment to “retirement age” at which time they become eligible for other tax credits available to all elderly persons. The Veterans of Foreign Wars opposes modification or repealing RR 58-43, since the need for such is no different today than upon its inception 17 years ago. Furthermore, we view the contemplated change of reducing dollar for dollar disability income in excess of $5,200 per annum as merely the opening gambit in a preconceived strategy by the Office of Management and Budget to launch an all-out campaign to eliminate or diminish other disability income tax benefits. MILITARY RETIRED PAY BASED ON PHYSICAL DISABILITY The authority for tax exemption of that portion of military retired pay based upon physical disability is to be found in Section 104 (a) (4) of the Internal Revenue Code and this only following a finding of unfitness of the member to perform the duties of his office, grade, rank, or rating because of physical disability incurred while entitled to basic pay, as enunciated in Chapter 61, Title 10, U.S. Code. The most current figures available from the Department of Defense indicate that at the end of June 1974 there were 159,639 military personnel retired for physical disability, which represents approximately 16 percent of the now more than one million military retirees. The same report reflects that the average disability retired pay is $402 a month compared with $552 per month for those retired for longevity. Although there have been allegations of abuses in the military disability retirement system, particularly insofar as general and flag officers were concerned, it would appear any such abuse was minimal, if at all, for the following reasons: (1) Senior Officers, particularly General and Flag Officers, normally serve full careers of 30 years or more and due to the rigors peculiar to military service over a protracted period and their advanced age at the time of retirement, are prone to be more severely disabled. (2) Enlisted personnel by law were not entitled to disability retired pay prior to passage of the Career Compensation Act of 1949. (3) The largest groups in receipt of military disability retired pay are as follows: The Veterans of Foreign Wars opposes any revision of Section 104 (a) (4) of the Internal Revenue Code which would alter the tax exemption of military retired pay based on physical disability, since the finding of unfitness to perform the duties of such office either prematurely terminated the member's military career or placed restrictions on the member's subsequent ability to earn a livelihood. Thus, the tax exemption on disability retired pay is needed in full or semiretirement and surely deserved. COMPENSATION AND DEPENDECY AND INDEMNITY COMPENSATION PAYABLE BY THE VETERANS ADMINISTRATION Tax exemption for veterans in receipt of compensation payable by the Veterans Administration for their service-connected disabilities and dependency and indemnity compensation for the widows and children of such veterans who expire from their service-connected disabilities flows from Section 104 (a) (4) of the Internal Revenue Code. This tax-exempt compensation throughout its modern history has been designed to provide relief for the impaired earning capacity of veterans disabled as the result of their military service. It is inconceivable that any person or body could be both so unfeeling and ungrateful as to even contemplate the taxation payable by the Veterans Administration. The Veterans of Foreign Wars would most strongly oppose with every resource at our disposal any attempt whatsoever to tax the benefits of our disabled veterans who have already made a great sacrifice in the service of their country and their widows and children. SUMMARY The Veterans of Foreign Wars is greatly alarmed by the mere fact hearings are being held regarding the above subjects. When the trial balloon launched by the Office of Management and Budget in the second session of the 93d Congress to alter sick pay exclusion and tax both military retired pay for physical disability and compensation payable by the Veterans Administration to those veterans with service-connected disabilities was burst by an outcry and campaign spearheaded by the Commander-in-Chief of our 1.8 million member Veterans of Foreign Wars, John J. Stang, to the Honorable Wilbur D. Mills, then Chairman and now Ranking Member of this Committee, we had high hopes such unconscionable proposals had been permanently laid to rest. Apparently we erred and must of necessity now view an attack on any one disability benefit a most serious threat to all similar benefits-or the domino theory in practice. We fear attack on that which the Office of Management and Budget apparently considers the key domino, sick pay exclusion, could result in repealing RR 58-43 in general and rewriting such, using the more stringent Social Security Administration test for disability and initially extending such test for qualification to sick pay exclusion to military retirees. This, then, would eliminate any tax exemption to all disabled military retirees except those unable to engage in any substantial, gainful employment due to physical or mental impairment expected to result in death or persist 12 or more months. Furthermore, such income exceeding $5,200 per annum would be taxed dollar for dollar-the fall of the second domino. With such an horrendous precedent established, the Office of Management and Budget could then fully prove the domino theory by attacking, first, all other federally and privately financed disability plans and, then compensation payable by the Veterans' Administration. At this point, and germaine to the issue, is quoted the statement of the Honorable Wilbur D. Mills of October 28, 1974: "It appears that on the occasion of this day dedicated to paying tribute to those outstanding Americans who have contributed so much to the preservation of our freedom and independence, there are those who are engaging in the cruelest form of politics in an attempt to frighten our veterans in these inflationary times. "I emphatically repeat that the Committee on Ways and Means has not and as long as I am Chairman will not take any action to tax veterans' benefits. Benefits paid by the Veterans' Administration are tax exempt and will remain tax exempt. I am confident that those responsible leaders of Arkansas' Veterans Organizations are well aware of the scare tactics presently being employed for political propaganda purposes and will seek the true facts in this situation. I deeply regret that the veterans have been used in this fashion, and I again reassure each of them that these assertions are flagrantly untrue. So long as 1 am Chairman of that Committee V.A. Benefits will not be taxed." We believe this most distinguished Committee and Congress in its wisdom should take whatever action necessary to cause the Office of Management and Budget, which apparently knows the price of everything and the value of nothing, to cease its relentless attack against disabled veterans and their widows. Their efforts to save money would be more appreciated and justified if directed at give-away programs to placate the ne'er-do-wells, the draft dodgers, and other malcontents. Thank you. Mr. MIKVA. The next subject matter to be discussed before the committee is income earned abroad. Our first witness will be Mr. Larue H. Velott, secretary, accompanied by Donald L. Field, Jr., counselor. Subject: INCOME EARNED ABROAD STATEMENT OF LARUE H. VELOTT, SECRETARY, AMERICAN FOREIGN SERVICE ASSOCIATION; ACCOMPANIED BY DONALD L. FIELD, JR., COUNSELOR, AND DANIEL NEWBERRY, VICE PRESIDENT Mr. VELOTT. Mr. Chairman, may I introduce Mr. Daniel Newberry, who is vice president of the association, who is sitting on my right. Mr. MIKVA. We welcome you before the committee, Mr. Newberry. Mr. VELOTT. Mr. Chairman, thank you for this opportunity to appear today to testify with respect to section C, item 6, of the topics for tax reform package in first phase. The American Foreign Service Association has for over 50 years as a professional organization been dedicated to enhancing the professionalism of the men and women of the Foreign Service. In 1973 AFSA was elected by the 11,000 Foreign Service people of State, AID, and USIA to be their exclusive employee representative. It is in both our professional and employee representative capacity that we appear before you today. 56-674-75- -8 |