Op-Ed by Senator Mark Pryor
On Fixing the Combat Pay Tax Inequity
As a member of the Senate Armed Services Committee, I made a pledge to U.S. troops, including the thousands of full-time National Guard and Reservists from Arkansas, to fight for them and their families in the Senate while they were away fighting to uphold freedom and democracy overseas. This is a promise I intend to keep.
The special role our men and women serving in the military play demands that they be "on call" to serve our nation at points all over the globe. However, the unique nature of their job has resulted in a diverse and very complex compensation package, oftentimes creating an especially difficult burden when it comes to filing their tax return.
Through the years, Congress has periodically passed laws which recognize the special needs of our military and to lessen administrative burdens on them. During such a time last year, I requested a comprehensive study by the General Accounting Office (GAO) to examine military compensation and the effects of its tax treatment on our troops. Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Max Baucus (D-MT) were instrumental in expediting this study.
The GAO study revealed an astonishing discrepancy: Some lower-income earning military personnel receiving tax exclusions for serving in combat zones are being forced to forfeit other tax advantages, including the Earned Income Tax Credit (EITC) and the additional Child Tax Credit.
Under the combat pay exclusion, military pay earned - including basic bay, bonuses, special pays and allowances - is excluded from taxable income while members of our military are serving in a designated combat zone.
However, income excluded under the combat pay provision is also excluded for the purpose of computing the Earned Income Tax Credit (EITC) and the Child Care Credit. The result is that thousands of our men and women serving in combat - serving in Iraq, Afghanistan, and around the globe - will see a reduction or elimination of their EITC or child credit and in effect will lose money. In other words, the tax code has the impact of penalizing them because they are serving in combat zones.
The GAO report characterizes this tax discrepancy as an "unintended consequence." I call it plain wrong. To correct the unfairness of current law, I have introduced the Tax Relief for Americans in Combat Act, along with Senator Baucus. The bill allows men and women in uniform serving in combat to include combat pay for the purpose of calculating their Earned Income and Child Tax credit benefits. In other words, they will be able to continue receiving their rightful combat pay exclusions while having the ability to take full advantage of other tax credits.
The urgency of this situation is highlighted especially when you look at those troops who are hardest hit by this tax glitch. We are talking about troops that tend to be in combat for more than 6 months, those in lower pay grades, those who are married with children, and those who have little or no savings or spousal income. We're talking about a clear wrong in the tax code that takes money from away from men and women serving this nation heroically in hot spots around the world who can least afford it.
The GAO analysis suggests that the amount of the tax benefit loss could be up to $4,500 for enlisted personnel and $3,200 for officers. This is real - make or break money - to many of these families that are already under enormous stress. Furthermore, the report cautions that the number of service members losing tax benefits could go up in 2004 depending on how many service members are in a combat zone and how long they are there.
One thing I know for sure is that child care services do not get cheaper just because a parent is serving overseas, nor does putting food on the table or keeping up with everyday expenses such as electricity or phone bills.
In fact, the opposite is true. Many lower-ranking enlisted personnel supplement their income through second jobs, an opportunity that is not an option once they are deployed. Additionally, Reservists and National Guard called to active duty suffer unexpected financial hardships. A 2002 Pentagon study concluded that 30 percent of Reservist households lose income when activated.
My bill is a common-sense measure to ensure our military families are being compensated fairly and receiving all the tax relief they deserve. It's a simple measure to help our troops concentrate on their military mission without worrying so much about the unpaid bill's piling up back home. And it's a measure to help fulfill a promise I made to take care of military families during this time of war.
Our men and women in uniform put their lives on the line for our nation every day; they should not have to jeopardize their financial well-being as well. Correcting the combat pay tax discrepancy could make a real difference for many of these families, and it is my hope we can fix the inequity this year.