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McCain Criticizes Conference Committee for Excluding Armed Forces Tax Fairness Act

Location: Washington, DC

Mr. MCCAIN. Mr. President, I am extremely disappointed for our brave military men and women that the conferees for the Jobs and Growth Tax Relief Reconciliation Act of 2003 decided to omit the Senate-passed Armed Forces Tax Fairness Act of 2003 from the conference report.

I offered an amendment to the tax bill that would add the Armed Forces Tax Fairness Act of 2003, which has been previously passed by the Senate. The amendment was accepted by unanimous consent. Since this legislation has already passed numerous times in the Senate, I believed that the conferees would include this important legislation for our military in the conference report without hesitation. But again, politics ruled the day.

Despite the recent successful war in Iraq, which highlighted the bravery and sacrifice of our military, the conferees provided nothing for them in this so-called growth bill. The only thing growing will be the tax breaks for the wealthiest citizens of this country. And in a time where we are also facing growing deficits and must also pay for the cost of the war, what the conferees did in the interest of "getting a deal" was the height of irresponsibility.

What the conferees denied was much-needed tax relief for our men and women in uniform whose sacrifice and commitment are the foundation upon which the freedom we all enjoy has been built. How they can deny these committed men and women who defend our country simple fairness is beyond understanding.

One of the provisions in the legislation that the conferees dismissed from inclusion in the conference report is what is popularly known as the Military Homeowners Equity Act. This legislation would allow service members, who are away on extended active duty, to qualify for the same tax relief on the profit generated when they sell their main residence as other Americans. Secretary of State Colin Powell fully supports this legislation, and this legislation enjoys overwhelming support by the senior uniformed leadership—the Joint Chiefs of Staff—as well as outgoing Office of Management and Budget Director Mitch Daniels, the 31-member associations of The Military Coalition, the American Foreign Service Association, and the American Bar Association.

The average American citizen participates in our Nation's growth through home ownership. Appreciation in the value of a home allows everyday Americans to participate in our country's prosperity. Fortunately, the Taxpayer Relief Act of 1997 recognized this and provided this break to lessen the amount of tax most Americans will pay on the profit they make when they sell their homes. Unfortunately, the 1997 home sale provision unintentionally discourages home ownership among service members and Foreign Service officers.

What we are doing is not creating a new tax benefit. We are merely modifying current law to include the time members of the military are away from home on active duty when calculating the number of years the homeowners has lived in their primary residence. In short, this bill is narrowly tailored to remedy a specific dilemma.

The Taxpayer Relief Act of 1997 delivered sweeping tax relief to millions of Americans through a wide variety of important tax changes that affect individuals, families, investors, and businesses. It was also one of the most complex tax laws enacted in recent history.

As with any complex legislation, there are winners and losers. But in this instance, there are unintended losers: members of the military and Foreign Services.

The 1997 act gives taxpayers who sell their principal residence a much-needed tax break. Prior to the 1997 act, taxpayers received a one-time exclusion on the profit they made when they sold their principal residence, but the taxpayer had to be at least 55 years old and live in the residence for 2 of the 5 years preceding the sale. This provision primarily benefited elderly taxpayers while not providing any relief to younger taxpayers and their families.

Fortunately, the 1997 act addressed this issue. Under this law, taxpayers who sell their principal residence on or after May 7, 1997, are not taxed on the first $250,000 of profit from the sale, joint filers are not taxed on the first $500,000 of profit they make from selling their principal residence. The taxpayer must meet two requirements to qualify for this tax relief. The taxpayer must, one, own the home for at least 2 of the 5 years preceding the sale, and, two, live in the home as their main home for at least 2 years of the last 5 years.

The bipartisan cooperation that resulted in this much-needed form of tax relief is commendable. The home sales provision sounds great, and it is. Unfortunately, the second part of this eligibility test unintentionally and unfairly prohibits many service men and women who are deployed overseas from qualifying for this beneficial tax relief.

Constant travel across the United States and abroad is inherent in the military and Foreign Service. Nonetheless, some service members and Foreign Service officers choose to purchase a home in a certain local, even though they will not live there much of the time. Under the new law, if they do not have a spouse who resides in the house during their absence, they will not qualify for the full benefit of the new home sales provision because no one "lives" in the home for the required period of time. The law is prejudiced against families who serve our Nation abroad. They would not qualify for the home sales exclusion because neither spouse "lives" in the house for enough time to qualify for the exclusion.

This bill simply remedies an inequality in the 1997 law. The bill amends the Internal Revenue Code so that members of the military and Foreign Service will be considered to be using their house as their main residence for any period that they are assigned overseas in the execution of their duties. In short, they will be deemed to be using their house as their main home, even if they are stationed in Iraq, Afghanistan, Bosnia, the Persian Gulf, in the "no man's land," commonly called the DMZ between North and South Korea, or anywhere else they are assigned.

In the wake of September 11, our Armed Forces are now deployed to an unprecedented number of locations. They are away from their primary homes, protecting and furthering the freedoms we Americans hold so dear. We cannot afford to discourage military service by penalizing military personnel with higher taxes merely because they are doing their job. Military service entails sacrifice, such as long periods of time away from friends and family and the constant threat of mobilization into hostile territory. We must not use the Tax Code to heap additional burdens upon our women and men in uniform.

The Taxpayers' Relief Act of 1997 was designed to provide sweeping tax relief to all Americans, including those who serve this country abroad. It it true that there are winners and losers in any tax code, but this inequity was unintended. Enacting this narrowly tailored remedy to grant equal tax relief to the members of our military and Foreign Services restores fairness and consistency to our increasingly complex Tax Code.

Mr. President, the case is clear. The conferees should have included the Armed Forces Tax Fairness Act of 2003 in the conference report for this tax relief bill. If they can look into the eyes of all the men and women in our military who have committed themselves to the defense of this country in Iraq and elsewhere around the world, and justify how they spent billions of Federal dollars to cut taxes for our Nation's wealthiest at their expense, then the process is clearly broken. And that is a disgrace for which they are solely responsible.

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