Lawmakers who went home rather than on a junket during summer recess likely are hearing from three groups of military constituents: home sellers, drilling reservists and disabled retirees. All have a stake in what Congress does, or chooses not to do, after Labor Day.

Military homeowners and reservists want the House and Senate to reconcile minor differences in military tax relief legislation and, at long last, pass it. After Congress fumbled the issue in 2002, the Senate passed its bill again in February. The House followed with its own Armed Forces Tax Fairness Act in March, and then revised it in early April.

As the time neared for a House-Senate conference committee to resolve differences, a new game began. Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, decided in June to roll military tax provisions into a House version of child tax credit reform legislation, much favored over the Senate plan. The combined bill is called the All-American Tax Relief Act and, of course, a source of contention.

Now the Senate must decide how best to conference with the House on both military tax breaks and the child tax credit issue. Thomas' maneuver, and a midsummer shift in priorities to Medicare reform, left tax relief hanging until the fall. That's no small matter for military families, more of whom each month must decide when or whether to sell their homes.

A key feature in both versions of the tax fairness bills would extend to members of the armed forces and Foreign Service the same tax exclusions on capital gains from home sales that other U.S. taxpayers have enjoyed for six years. It would shelter profits of up to $250,000 for individuals and $500,000 for couples filing jointly on home sales after May 6, 1997.

Under current law, to shelter such profits, the owner must reside in the home two of five years preceding the sale. The new bill would allow military and Foreign Service to exclude from the five-year residency rule any time away for official extended duty.

For drilling reservists and Guardsman, both bills also would establish tax deductions for lodging and travel expenses when serving, and staying over night, more than 100 miles from home. The new travel deductions could not exceed federal per diem rates. The House version of the bill would cap the deductions at $1,500 a year.

By law, reservists can claim travel expense deductions for overnight stays only if they itemize deductions on tax returns and if total travel expenses exceed 2 percent of adjusted gross income. The new tax relief package would make long-distance reserve travel 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 full $6,000 military death gratuity to next of kin tax-free. Currently, only one half is tax-free.

The bill also would raise the value of the military's Homeowner's Assistance Program. Under HAP, servicemembers are reimbursed for drops in home values tied to base closings and realignments. Such payments now are taxable; they would become tax-free.

As the House recessed in late July, Thomas said he was saddened that some lawmakers had turned military tax breaks and child tax credits into a "political opportunity" while "I'm interested in creating sound policy."

Sen. Max Baucus of Montana, ranking Democrat on the Senate Finance Committee, criticized House Republicans' unwillingness to accept child tax credit legislation passed by the Senate.Yet only the Senate bill, he said, would provide tax relief to families with taxable incomes of $10,000 to $27,000 a year, including many in the military. And only the Senate bill, he said, would close a loophole in child tax credit law that prevents many lower-income service members from eligibility when serving in a combat zone.

Another unresolved issue as Congress recessed was whether House Republicans can persuade President Bush to drop his veto threat and allow further easing of the ban on "concurrent receipt" of full military retired pay and VA disability pay for service-connected illnesses or injuries.

At a minimum, concurrent receipt proponents argue, Bush should allow payment of Combat-Related Special Compensation to retired reservists. CRSC was a "first step" on concurrent receipt enacted last year. A congressional source said "high-level talks" between House leaders and the White House had occurred but no deal was struck before the House recessed.

About 710,000 military retirees with disabilities and 20 or more years of service forfeit part or all of earned annuities to draw tax-free VA disability pay. Only about 35,000, or five percent, will see at least some of that retired pay offset restored through CRSC this year.

The fight over concurrent receipt will continue in September and center on House Republicans who signed on as co-sponsors of HR 303, a bill to lift the ban on concurrent receipt, but have declined to sign a discharge petition from Rep. Jim Marshall, D-Ga., to force a floor vote.

Only one Republican, Tom Tancredo of Colorado, had signed the petition, keeping the bill off the floor by about 16 votes. But others warned they might break ranks if the White House refuses to bend on the issue. Even Rep. Michael Bilirakis, R-Fla., author of HR 303, was refusing to sign the petition but privately pushed for a face-saving compromise.

If there is to be deal, it still looked weeks away.

— Comments are welcomed. Write Military Update, P.O. Box 231111, Centreville, VA 20120-1111, e-mail or visit Philpott's Web site at:

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