LETTER TO THE HONORABLE MELVIN PRICE FROM W. E. COLBY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP77M00144R001100070006-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 16, 2016
• Document Release Date: April 18, 2005
• Sequence Number: 6
• Publication Date: October 23, 1975
• Content Type: LETTER

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CENTRAL INTELLIGENCE AGENCY
WASHINGTON,D.C. 20505
23 October 1975
Honorable Melvin Price, Chairman
Committee on Armed Services
House of Representatives
Washington, D.C. 20515
In light of your interest in the programs of this Agency, I believe it
is incumbent upon me to register with you my concern over the October 1
action of the House Ways and Means Committee in deciding to recommend the
phasing out of Section 912 of the Internal Revenue Code which excludes
from gross income certain allowances paid to civilian employees of the Federal
Government serving overseas. In my view such action would be inequitable,
prejudicial to the essential operations of this Agency, potentially inflationary,
and without benefit to overall U.S. Government operations.
I am very concerned that repeal of Section 912 will make it extremely
difficult for the Agency to induce qualified personnel to accept assignments
abroad. Already, reports of the Committee's action have dismayed our
employees, especially those currently serving overseas. I know you believe,
as I do, that the United States Government must attract and retain the best,
most highly qualified people to serve its interests abroad. The action which
the House Ways and Means Committee is about to recommend would make it
very difficult for the Agency to meet these goals.
The overseas allowances in question do not represent additional compensa-
tion. They are intended to, and do in fact, defray necessary additional expenses
incurred because of overseas service. The Overseas Differentials and Allowances
Act of 1960 (P.L. 86-707) which authorizes most of these allowances, and the
House and Senate Reports on that Act, clearly reflect congressional recogni-
tion that service abroad entails expenses to employees above those which the
employee would incur if stationed in the United States. The tax law has long
distinguished between those allowances which represent increments to income
(such as the "hardship differential") and those intended to reimburse employees
for expenses incurred because of assignment overseas by the Government.
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These latter non-compensatory allowances include the "cost-of-living"
allowance, the housing allowance, and the educational allowance. Incre-
ments to salary have traditionally been taxed. Reimbursement for extra-
ordinary job-related expenses which do not leave the employee "better off"
financially have not been taxed.
Repeal of Section 912 would not produce revenue but would in fact
result in a net loss to the Government. It has been widely recognized within
the Executive branch that allowances would have to be increased to offset the
taxes to be levied if Section 912 were repealed. In addition, there would be
a substantial increase in the work load of simply recording payments in
Government records, to say nothing of the increased burden of the employee/
taxpayer in submitting his return and of the Internal Revenue Service in
processing it. Disbursements which are now charged to expense at the over-
seas post would thereafter have to be transferred to Headquarters for a
centralized control and ultimate inclusion in the tax withholding report pro-
vided to the taxpayer and to the Internal Revenue Service. The slight increase
in revenue would not balance the cost of larger appropriations for allowances,
in addition to the cost of non-productive record keeping at the field installation,
at Headquarters, in Internal Revenue Service, and on the part of the taxpayer.
We would have a situation where the tax collection system would have become
an end in itself, and the Federal Government would be forced to pay more for
conducting its business overseas.
Presently, the Interagency Committee on Allowances and Benefits is
studying and making recommendations on the overseas allowance structure.
The Interagency Committee is scheduled to complete its report in December,
following which the Secretary of State, myself, and other heads of overseas
service agencies will make whatever determinations may be necessary--
based on the Committee's findings--to insure that Government allowances
and benefits to our civilian employees serving abroad are equitable and
uniformly determined and administered. If, for example, after the Interagency
Committee completes its current review, it is determined that there is an
element of profit in the.quarters allowance as it is now administered, I would
recommend re-factoring the allowance to eliminate that portion which is
judged to be additional compensation. This would be preferable to taxing
the whole allowance of all affected employees. These are judgments, however,
which should await the completion of the Committee's study and which should
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not be made on the basis of incomplete information. For the Congress to act
now--in the absence of essential facts and analysis--would do a great disservice
to thousands of dedicated civilian overseas employees with adverse consequences
for the Government's overseas programs.
I am enclosing for your consideration a memorandum concerning
this matter.
Sincerely,
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