Action in Congress

Dec. 1, 2003

Prize for 225,000 Retirees

The “concurrent receipt” compromise that was struck in October will boost incomes of 225,000 military retirees, according to Congressional Budget Office estimates.

CBO reports that about half will qualify for tax-exempt Combat-Related Special Compensation on top of their VA disability compensation.

Others may not qualify for CRSC but have disabilities rated 50 percent or higher, which means Washington will restore, over a 10-year period, whatever retired pay they now forfeit to receive disability compensation.

The Bush Administration and Congress agreed to ease the century-old ban on simultaneous receipt of both retired pay and disability compensation. A disabled veteran had to reduce his retired pay, dollar for dollar, if receiving VA payments.

The deal pleased those who stand to gain but left others angry. More than 300,000 retirees who forfeit some retired pay do not benefit because their disabilities are rated below 50 percent and are deemed to be unrelated to combat.

The Deal’s Fine Print

Language in the 2004 defense authorization bill not only shapes the 10-year, $22.1 billion deal but also clarifies what levels of retired pay will be restored—and when.

Here are key details of the compromise.

Combat-Related Special Compensation. Some 107,000 retirees could be eligible for payments for combat-related disabilities as low as 10 percent. This is in addition to 35,000 expected to qualify for CRSC under more restrictive criteria passed last year.

Applicants must have a Purple Heart for war wounds or combat-related disabilities rated 60 percent or higher. Payments are retroactive to June 1. In January, CRSC will expand to include all retirees with 20 or more years of service and any combat-related disability.

Limited Concurrent Receipt. Another 115,000 retirees receiving VA checks will see a 10-year phase in of payments that will take them back to full retired pay. They must have disability ratings of 50 percent or higher. Included in this eligibility pool are service members who retired with 15 to 19 years of service under Temporary Early Retirement Authority (TERA) used during the post-Cold War drawdown. Retired pay will be restored automatically.

Reserve Eligibility. CBO projects that an estimated 3,000 National Guard and Reserve retirees would qualify for CRSC or limited CR.

Other Payments. Military retired pay is offset not only by VA disability compensation but also by other VA payments—for dependents, for individuals deemed unemployable, and for veterans receiving Special Monthly Compensation for the most severe injuries. The legislation restores all retired pay lost as a result of any kind of VA payment.

Commission To Study Benefits

The same law that eases the ban on concurrent receipt also establishes a Veterans’ Disability Benefits Commission. This 13-member panel will feature eight commissioners appointed by leaders of Congress and five appointed by President Bush. Seven of the 13 must be veterans awarded at least a Silver Star.

After its first meeting, the commission will have 15 months to conduct a comprehensive study on revising disability and death benefits for veterans and their survivors before delivering its finding to the President and Congress.

Action on Tax Breaks, Finally

Military associations and a Texas Congressman urged tax-writing lawmakers to resist the temptation to play politics this year with much-needed tax reform for military members. Their pleas apparently were heard.

In late October, Rep. Chet Edwards (D-Tex.) joined the Air Force Association and other service organizations in urging House Speaker Dennis Hastert to take the original Armed Forces Tax Fairness Act (H.R. 1307) “off the shelf and send it to the President for his signature.” (See “AFA in Action,” p. 84.)

Both the House and Senate earlier this year had passed different versions of the tax fairness bill, which would have put an end to tax inequities that for years have burdened military homeowners. Yet, the measure faced unreconciled differences and seemed set on a course for stalemate.

However, in early November, action in both houses led to passage of a follow-on bill, the Military Family Tax Relief Act (H.R. 3365) that included key provisions of the tax fairness act. The new tax relief bill will:

  • Extend to military members—retroactively—the same tax breaks on capital gains from home sales that other taxpayers have enjoyed since 1997.
  • Provide tax deductions for reservists who incur travel and lodging expenses when drilling 100 miles or more from home.
  • Raise the military death gratuity from $6,000 to $12,000 and restore full tax-exempt status to the gratuity. (The increase is retroactive to Sept. 11, 2001, and future increases are also to be tax free.)

President Bush signed the legislation on Veterans Day, Nov. 11.

No Drug Plan Impact

As a House–Senate conference committee negotiated final details of the Prescription Drug and Medicare Improvement Act of 2003 (S. 1, H.R. 1), defense health officials reviewed what impact the bill’s $400 million prescription drug program might have on military pharmacy benefits.

The answer is none, they concluded.

William Winkenwerder Jr., assistant secretary of defense for health affairs, told the Military Coalition, an umbrella group for a few dozen service associations, that the proposed Medicare drug benefit “would be in addition to current Tricare pharmacy benefits, not in place of them.”