TAX REFORM IMPACT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000400060015-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 23, 2016
• Document Release Date: December 29, 2010
• Sequence Number: 15
• Publication Date: November 25, 1985
• Content Type: OPEN SOURCE

Approved For Release 2010/12/29: CIA-RDP89-00066R000400060015-9
B2 MONDAY, NOVEMBER 25, 1985
THE FEDERAL DIARY 1 7
Tax Reform Impact
By Mike Causey
Washington Post Staff Writer
A pending proposal to
eliminate the
post-retirement, tax-free
period on federal and public
employe pensions would have a
major impact on people who
retire next year, according to
the Federal Government
Service Task Force.
The task force, a bipartisan
pro-civil servant caucus, says
the draft tax reform proposal by
the House Ways and Means
Committee could mean $10,000
in unexpected taxes over a
three-year period for the typical
federal worker. Its report was
prepared by Reps. Michael D.
Barnes (D-Md.) and Vic Fazio
(D-Calif.) and Sen. Paul S.
Sarbanes (D-Md.).
Also against the change is thel
Senior Executives Association,
which warns of a possible
retirement stampede this year.
SEA, which represents many of
the 9,000 top executives, says
half its members are eligible to
retire now and this could push
them out of government.
Currently, workers who
contribute to their pension
plan-this includes many state
and local workers as well as U.S.
civil servants-don't pay federal
taxes on their pensions until they
have recovered their
contributions. They have already,
paid taxes on contributions as
part of their salaries: For the
typical federal employe, that
tax-free period is about 18
months, although it can run for
as long as three years.
During that period, many
federal workers cash in stocks
or bonds or take other jobs.
They are taxed at a lower rate
because their pensions are not
counted as income.
One portion of the
president's tax reform plan,
tentatively approved by the
Democratic-controlled Ways
and Means Committee, would
eliminate that tax-free period.
It would require persons who
retire next year to begin paying
taxes immediately on the
government's contributions to
their retirement, based on the
actuarial assumption of their life
expectancy, which, for someone
retiring at age 62, is about 12
years. Rather than enjoy the
benefits of the initial tax-free
period, the task force says, the
. employe's tax would be based
on the ratio of their
contributions to the total
annuity. In other words, they
would be taxed immediately to
take into account the prorated
share of the government
contribution to their pension.
Retirees would pay no more
taxes over their lifetime, but
they would be hit with an'
unexpected tax burden in their
first year of retirement. The
task force estimates that a
typical worker (salary $28,000
to $30,000) would get an
annuity of about $16,800.
But under the tax reform
plan, those retirees would start
paying taxes immediately on a
portion of their pensions.
If the change, part of the giant
tax reform bill, is approved, it
would affect those retiring next
year, not persons already retired.
Feds are cautioned not to
jump into retirement-because
of the uncertain status of the
bill. But anyone of retirement
age should follow the bill's
progress and-if they want to
avoid the new tax
regulation-be ready to make a
decision if the law is changed.
Special-Rate Employes
Rep. Mary Rose Oakar
(D-Ohio) plans hearings early
next year on the status of
scientists, engineers and other
government workers who are
paid special, higher rates than
others in the same grades.
The government has the
authority to set special rates for
employes in certain occupations
to help it recruit and retain
them. Most of the special-rate
employes are engineers and
scientists, but the higher pay
scales are also in effect for
some medical personnel.
Oakar has asked the Defense
Department for an end-of-year
report on any problems it has
getting and keeping engineers
and scientists. She has also
asked the General-Accounting
Office to do a study of any
salary problems in other
agencies.
CA
W 11
Approved For Release 2010/12/29: CIA-RDP89-00066R000400060015-9