MILITARY UPDATE
Congress urged to act on tax relief
By Tom Philpott
Lawmakers, home on summer recess, are hearing from three groups of military constituents: home sellers, drilling reservists and disabled retirees.
Military homeowners and reservists want the House and Senate to reconcile minor differences in military tax-relief legislation and, at long last, pass it. After Congress fumbled the issue in 2002, the Senate passed its bill again in February. The House followed with its own Armed Forces Tax Fairness Act in March, and then revised it in April.
As the time neared for a House-Senate conference committee to resolve differences, a new game began.
Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, decided in June to roll military tax provisions into a House version of child tax-credit reform legislation, much favored over the Senate plan. The combined bill is called the All-American Tax Relief Act and is , of course, a source of contention.
Thomas' maneuver, and a midsummer shift in priorities to Medicare reform, left tax relief hanging until the fall.
A key feature in both versions of the tax fairness bills would extend to members of the armed forces and Foreign Service the same tax exclusions on capital gains from home sales that other U.S. taxpayers have enjoyed for six years. It would shelter profits of up to $250,000 for individuals and $500,000 for couples filing jointly on home sales after May 6, 1997.
For drilling reservists and Guardsmen, both bills also would establish tax deductions for lodging and travel expenses when serving, and staying overnight, more than 100 miles from home. The new travel deductions could not exceed federal per diem rates. The House version of the bill would cap the deductions at $1,500 a year.
Under present law, reservists can claim travel expense deductions for overnight stays only if they itemize deductions on tax returns and if total travel expenses exceed 2 percent of adjusted gross income. The new tax-relief package would make long-distance reserve travel expenses "above-the-line" deductions from gross income, directly lowering taxes even for reservists who don't otherwise itemize deductions.
A third highlight of the tax bill would make the full $6,000 military death gratuity to next of kin tax free. Now, only half is tax-exempt.
The bill also would raise the value of the military's Homeowner's Assistance Program. Under HAP, service members are reimbursed for drops in home values tied to base closings and realignments. Such payments would become tax-free.
Another unresolved issue as Congress recessed was whether House Republicans can persuade President Bush to drop his veto threat and allow further easing of the ban on "concurrent receipt" of full military retired pay and VA disability pay for service-connected illnesses or injuries.
At a minimum, concurrent receipt proponents argue, Bush should allow payment of combat-related special compensation to retired reservists.
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