RETHINKING TAX RULES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000201070010-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: January 25, 2012
• Sequence Number: 10
• Publication Date: March 6, 1986
• Content Type: OPEN SOURCE

Declassified in Part -Sanitized Copy Approved for Release 2012/01/25 :CIA-RDP90-009658000201070010-4
~. ; ~ ,,, ~;_?~~~~ WASHINGTON POST
G f7arch 1986
THE FEDERAL DIARY
Rethinking Tax Rules
. By Mike Causey
Wa,hmgwn Pavt Sta(( Wnter
roposed changes in
pension tax rules could
cost the federal
government millions of dollars,
disrupt operations and push
thousands of key workers into
premature retirement during
the next three months, three
members of Congress who
represent many of the workers
contend.
The legislators, Reps. Frank
Wolf (R-Va.) and Steny Hoyer
(U-MdJ and Sen. Paul Trible
(R-Va.), said reports from
federal personnel directors
have convinced them that a
presummer government
retirement stampede would be
made possible by a provision in
the tax reform bill passed by
the House. They have asked the
Senate Finance Committee,
now working on its own tax
plan, to exclude that provision
from any legislation it approves.
The House's tax reform bill
would eliminate the recovery
rule starting July 1. The rule
allows workers who contribute
to their pension plans-
including 14 million federal,
state and local government
workers and teachers-to
receive tax-free pension benefits
until they recover the
already-taxed money they paid
fi.
Most federal workers
recover their contributions in
about 18 months, but current
rules allow this process to take
up to three years.
Under the House tax reform
plan, a prorated portion of an
employe's pension would be
subject to immediate taxation.
If the House bill becomes law,
federal employes would have to
be retired by June 3 to escape
immediate taxation.
The Federal Government
Service Task Force, a sort of
congressional civil service
caucus, estimates that the
change could mean a tax bite of
up to $10,000 in the first three
years.
Many federal workers use
the tax-excused period after
retirement to cash in
investments or take other jobs
so they will be taxed at lower
rates, because their annuities
don't count as income.
In a letter to Senate Finance
Committee Chairman Bob
Packwood (R-Ore.), Wolf, Hoyer
and Trible-who represent
about one of every 10 federal
workers-say retirements
triggered by the pension .tax
change would disrupt programs
in many agencies, and could
shave this year's tax collections
by the IRS.
They said that 10 percent of
the IRS' top career executives
retired in the last three months,
largely in response to the
annuity tax proposal. An
additional 10 percent "have
indicated their plans to retire to
avoid the tax penalty," the
legislators said in a joint
statement.
Thev quoted the ~grsonnel
director at the Central
Intelligence Agency as saying
that emn y ere were
"keenly aware of this tax rule
chanste .. and indications are
that a significant number would
retire to avoid the change. The
potential loss of experience in
our mtelliRence cadre ...would
require the premature elevation
of officers" lack~in m~experience.
State Department of~icia s~-
told Wolf, Hoyer and Trible that
more than 70 percent of their
senior foreign service employes
are eligible to retire, and
said a mass exodus "would
unquestionably strain our ability
to manage the department."
FBI officials said bureau
activities'wvould be severely
hampered" if a large number of
employes retired at one time.
They told the legislators that it
would produce a "severe
experience drain which will take
several years to overcome."
NASA officials were reported
to have said that nearly half of
their top scientists were eligible
to retire and that many could be
expected to quit if the tax
change becomes law.
Declassified in Part -Sanitized Copy Approved for Release 2012/01/25 :CIA-RDP90-009658000201070010-4