Compensation Gains
House and Senate negotiators meet this month to reconcile their versions of the 2004 defense authorization. Both bills have key personnel provisions that guarantee service members major compensation gains in January. Among them:
- Pay Raises. On Jan. 1, pay will go up by an average of 4.15 percent. It is the fifth straight year Congress has boosted pay by a little extra, trying to close a gap between the military and the private sector. Both chambers accepted a Bush Administration plan to vary basic pay gains by grade. Midgrade and senior enlisted members would see increases of 4.6 to 6.25 percent. The Senate would boost everyone’s pay by at least 3.7 percent, but the House made no such provision.
- Future pay. Current law sets pay raises through 2006 at one-half percent above private sector wage growth, as measured by the government’s Employment Cost Index. Under the Senate plan, subsequent raises would match ECI changes to keep the gap from returning. The House bill has no such provision.
- Basic Allowance for Housing. Both the House and Senate plan to increase the Basic Allowance for Housing. In January, with the new increase in force, the portion of rent paid out of pocket by the average US-based service member would fall from 7.5 percent to 3.5 percent. Another boost in 2005 would end out-of-pocket payments. When Congress began boosting BAH a few years ago, the average military member living off base was absorbing 19 percent of his or her monthly rental cost.
- Wartime pays. Both chambers agreed to extend beyond Sept. 30 two wartime pay raises enacted in a defense supplemental bill signed last April. The Senate would make permanent a $150-a-month raise in Family Separation Allowance and a $75-a-month jump in Imminent Danger Pay. The House wants the increases to expire at the end of US operations in Iraq and Afghanistan.
OMB’s Different Drum
Though the Guard and Reserve are heavily engaged in overseas operations, the Office of Management and Budget warned that Congress is being too generous with these components.
The green-eyeshade unit criticized the House and Senate authorization decisions. It took exception to a Senate provision that would double—to $12,000—the military’s death gratuity for members who die on active duty, retroactive to Sept. 11, 2001, and a $100-per-month incentive payment for members deployed to South Korea. OMB also criticized language found in both bills to give drilling Guard and Reserve personnel unlimited commissary privileges.
OMB declared that such Congressional initiatives “divert resources unnecessarily.”
Food Stamp Families
Three years ago, amid a rash of press reports that some military families were eligible for—and even using—food stamps, Congress enacted the Family Subsistence Supplemental Allowance. It raised by up to $500 the monthly food allowances for low-income and large military families. The intent was to eliminate the stigma of their eligibility for food stamps.
Has it been effective
FSSA payments began in May 2001. Roughly 650 families participate, but the extra pay has not wiped out food stamp usage by service members. An estimated 2,400 junior enlisted families have so many dependents that FSSA alone doesn’t work. DOD says many would fall off the rolls if the Department of Agriculture, which runs the food stamp program, includes the value of on-base housing in calculations of income.
DOD officials argue that recent raises in pay and housing allowances have been more effective than FSSA in getting families off food stamps. A decade ago, almost 9,500 service members received food stamps.
Commissary Support
Air Force Maj. Gen. Michael P. Wiedemer, director of the Defense Commissary Agency (DeCA), says Congressional support for commissaries is as good as—or better than—it ever has been.
Some believe that, were that support not so strong, the Pentagon would already have contracted with a commercial grocer, on a test basis, to run some Army and Marine Corps stores. The concept interests Secretary of Defense Donald H. Rumsfeld.
Wiedemer, in an interview, said he had “no knowledge” of an “active proposal” to privatize base grocery stores. However, he argued, “I have never seen a business case to justify privatization.”
Among prized benefits, the right to shop at a commissary ranks behind only health care. DeCA reports that a typical four-member service family using commissaries saves $2,400 per year.
Rumsfeld says commercial grocers might be able to run commissaries more efficiently. Opponents fear such an experiment would lead to full privatization and, ultimately, a decline in the value of the benefit.
Wiedemer says DeCA has $5 billion in annual sales but is under “constant pressure” to reduce an annual $1 billion taxpayer subsidy.
Homeowner Tax Breaks
Congress left town for the summer with another critical piece of legislation awaiting final action, this one important to military homeowners and drilling reservists.
Both the House and Senate had passed a long-awaited Armed Forces Tax Fairness Act with language to extend to members of the armed forces and Foreign Service the same capital gains tax exclusions on proceeds from home sales that have been available to other taxpayers for six years. The change would be retroactive to home sales since May 1997. (See “AFA In Action,” p. 116.)
Under current law, profits on home sales can be sheltered from taxes only if the owner has resided in the home two of five years preceding the sale. The tax fairness bill would allow military members and Foreign Service Officers to exclude from the five-year residency rule any time away for official extended duty.
The bill also would allow drilling Guard and Reserve members new tax deductions of up to $1,500 a year for lodging and travel expenses when serving, and staying overnight, more than 100 miles from home. Another provision would make the military death gratuity of $6,000 fully tax exempt. Survivors now pay taxes on half of it.
Finally, the bill also would raise the value of the military’s Homeowner’s Assistance Program. Under HAP, the Defense Department reimburses service members for drops in home values tied to base closings and realignments. Such payments now are taxable income. The bill would make them tax free.
A House–Senate conference committee needed to resolve only minor differences between the two bills when Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee, combined the House military tax package with legislation to protect child care tax credits. He called the new bill the All-American Tax Relief Act of 2003.
Sen. Charles Grassley (R-Iowa), chairman of the Senate Finance Committee, sent a letter to Thomas seeking a conference on the child tax credit legislation, but the conference won’t begin until September.
Concurrent Receipt Limbo
The House went on summer recess July 26 before Republicans and the White House reached what was expected to be a compromise on further relaxing the ban on concurrent receipt of full military retirement and VA disability pay for service-connected illnesses or injuries.
Proponents hoped the White House, at a minimum, might be persuaded to allow payment of Combat-Related Special Compensation to retired reservists. CRSC was a “first step” on concurrent receipt enacted last year.
House Republicans are pressing Speaker Dennis Hastert of Illinois and other leaders to urge President Bush to drop a veto threat and allow easing of the ban on concurrent receipt. “High-level talks,” said one Congressional staffer, occurred in July.
Retirees now forfeit part or all of their earned annuities to draw tax-free VA disability pay.
With surprising effectiveness, some of those 710,000 retirees in recent months have been threatening House Republicans with electoral defeat if they fail to back up words of support with real action.
Specifically, they want Republicans who signed on as co-sponsors of HR 303—a bill to lift the ban on concurrent receipt—to join Democrats in signing a discharge petition that would force a recorded vote on the bill.
Rep. Tom Tancredo, a Colorado Republican, signed the Democrat-inspired petition. Other Republicans warned Hastert that they, too, might break ranks.
Rep. Michael Bilirakis (R-Fla.) pushed to revive a compromise that House members had reached last year before Bush’s veto threat. It called for a five-year period to phase in full concurrent receipt for 90,000 seriously disabled retirees—those with disability ratings of 60 percent or higher.
In a July 8 letter to the House Armed Services Committee, Rumsfeld again expressed opposition to concurrent receipt, saying the Senate plan to end the ban would cost $57 billion over 10 years and drain resources from more critical personnel programs.
SBP Gains Still Stalled
The House and Senate disappointed Survivor Benefit Plan participants—again—by ignoring bills to reform the program. No measure to improve SBP was included in either the House or Senate 2004 defense authorization bills, despite long and active lobbying by service associations.
Several measures sought to:
- Eliminate the reduction in survivor benefits that takes place when covered spouses turn 62 and become eligible for Social Security.
- Repeal an offset from surviving spouse annuities that is paid as dependency and indemnity compensation.
- Move up by five years, to Oct. 1, 2003, the effective date for a “paid-up” coverage provision to take effect under SBP.
Activists claim the US needs to enact reforms to restore SBP’s value and reverse the trend in which participants shoulder more of their costs. When SBP began in 1972, the subsidy amounted to 40 percent of the cost. With beneficiaries living longer, the percentage has fallen to 17 percent.
The most controversial feature of SBP is a reduction in benefits—from 55 percent of the covered annuity down to as low as 35 percent—when a surviving spouse turns 62. Like concurrent receipt legislation, bills to phase out the offset have broad co-sponsorship but not enough active political support to trigger real change.