The plan to give new U.S. workers a tax credit to offset their retirement contributions would cost the government about $410 million, according to the Congressional Budget Office.
Last week Rep. Bill Ford (D-Mich.) and Sen. Ted Stevens (R-Alaska) introduced legislation that would provide workers hired next year a tax credit equal to the amount of money they put into the civil service retirement fund.
Ford and Stevens proposed the tax credit because starting next year new U.S. workers will have to put 7 percent of their salary into the federal retirement program and another 7 percent into Social Security. Without something to offset the effects of a 14 percent retirement bite from the paycheck, Ford and Stevens argue the government would be hard pressed to hire new employes.
Current federal workers contribute 7 percent of their salary to the retirement fund and pay the 1.3 percent Medicare tax. The Ford-Stevens proposal would not change their contribution rate.
If Congress okays the plan, new employes would pay both Social Security and Civil Service retirement. But they would get the money back in the form of a tax credit. The system for new employes would be in effect until the end of 1985, giving Congress time to come up with a new retirement program for those workers.
When employes leave the government (or retire), that portion of their retirement fund payments which had received a tax credit would then be subject to tax as income. Present federal employes do not pay tax on their annuity until they have recovered all the money they put into the system.
The CBO estimates that eventually the government would recover about $82 million of the estimated $410 million the tax credit will cost.
Backers of the tax credit argue that it is necessary to help the government recruit the best people and to compensate employes who would be coming into government without knowing what kind of a retirement program would be eventually set up for them.