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On the eve of victory in Iraq, Congress itself was moving on a couple of fronts to reward American troops with pay and tax improvements.

Tax relief

As Baghdad fell to U.S. forces April 9, the House passed for a second time this year, but with new Senate-endorsed amendments, the long-awaited Armed Forces Tax Fairness Act (HR 1664).

If the Senate approves the rewritten bill, as expected, it would give military members and Foreign Service officers assigned away from home the same tax breaks on capital gains from home sales as enjoyed for the last six years by other U.S. homeowners.

More importantly for some, the capital gains protection on home sale profits — of up to $250,000 for individuals and $500,000 for couples filing jointly — would apply retroactively to sales since May 1997, when the tax breaks took effect for other taxpayers.

Under current law, profits on home sales can be sheltered from taxes only if the owner resided in the home two of five years preceding the sale. The new bill would allow military and Foreign Service personnel to exclude from the five-year residency rule time away for official extended duty.

The tax bill also would benefit many reservists and Guardsman by creating new tax deductions, of up to $1,500 a year, for lodging and travel expenses when serving, and staying over night, more than 100 miles from home. They now can claim such travel expenses only if they itemize on their tax returns and only if travel expenses exceed two percent of adjusted gross income. The planned change would make the long-distance reserve expenses "above-the-line" deductions from gross income, directly lowering taxes even for reservists who don't otherwise itemize deductions.

A third highlight of the tax bill would make the $6,000 death gratuity paid to military survivors entirely tax-free. Currently, only half is exempt.

The bill also would raise the value of the military's Homeowner's Assistance Program. Under HAP, the Defense Department reimburses service members for drops in home values tied to base closings and realignments. Such payments now are taxable income. The bill would make them tax free.

Because the Senate already has passed many of these same proposals, with modest differences, acceptance of the House bill and final enactment is likely this month.

Deployment pays

The Senate April 2 surprised House colleagues by amending the Fiscal 2003 supplemental defense appropriations bill with two initiatives hat would pump more than a half-billion into the paychecks of deployed servicemembers. These could face a tougher test winning final passage than the tax breaks.

The Senate voted to increase Imminent Danger Pay would rise from $150 a month to $225. It now is paid to more than 250,000 servicemembers in Iraq, Kuwait, Kosovo, Bosnia, and other areas of higher risk.

The Senate also voted to boost Family Separation Allowance [FSA] paid to servicemembers deployed from home for more than 30 days. Monthly FSA of $100 would be raised to $250. Both increases would be retroactive to Oct. 1, 2002.

The House bill contains no such provisions so a House-Senate conference committee will have to decide whether the initiatives survive.

The Senate appropriations committee tagged the cost of both changes at $800 million a year. Defense officials came in with a lower estimate, less than $600 million, but also argued that the initiatives, if meant to reward forces at war in Iraq, were written too broadly.

FSA is paid to any member separated from spouse or children more than a month. That includes deployed ships regardless of whether they are in a war zone, officials said. Imminent Danger Pay likewise is paid in many areas less dangerous than the war zone in Iraq.

More specific to a combat setting is Hostile Fire Pay, a type of danger pay. But because it is "event-driven" rather than geographic, hostile fire pay stops with hostilities. Defense officials have suggested to Congress that raising Hostile Fire Pay might be more appropriate, and far less costly, than Senate proposals to raise FSA and Imminent Danger Pay, both of which go to many more people than Hostile Fire Pay.

It was unclear whether House negotiators will embrace this logic when they negotiate a final 2003 supplemental bill with senators later this month. Rep. C.W. "Bill" Young has said he wants to pass a "clean" bill, one without major additions from the $74.7 billion requested by the White House.

FSA was last increased, by $25, in September 1999.

Medals

President Bush last month authorized two new medals to recognize service in the Global War on Terrorism (GWOT).

The GWOT Expeditionary Medal recognizes any servicemember who participates in an expedition to combat terrorism on or after Sept. 11, 2001. It is limited to those who deploy as part of Operation Enduring Freedom, the fight in Afghanistan.

The GWOT Service Medal recognizes service in military operations to combat terrorism. This is limited to Operation Noble Eagle, to protect the United States from terror, and to servicemembers who provide support from outside the area of eligibility for the GWOT Expeditionary Medal.

Specific eligibility for the medals will be set by Defense Department award policy. Combatant commanders have authority to award the medals for approved operations to units and personnel deployed in their theater.

Officials said it will take a year to produce and stock the medals.

Comments and suggestions are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111 or send e-mail to: milupdate@aol.com


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