Federal workers including members of Congress -- who retire in the future will be hit with a major pension tax change unless the Republican Senate rewrites the tax reform bill approved by the House.
The complicated Democratic tax reform plan passed by the House would eliminate the so-called post-retirement tax-free period for 19 million public employes. Under current law anyone who contributes to a pension plan isn't taxed on that annuity following retirement -- because taxes have already been paid on it -- until the amount contributed has been recovered. For the typical federal retiree this tax-free period lasts about 18 months.
Reforms approved by the House would eliminate that tax-free period. They would require workers retiring after next July 1 to immediately begin paying taxes on a portion of their annuity: the portion contributed by the government. The amount to be taxed would be based on actuarial assumptions of the retirees' life expectancy.
Federal and postal worker organizations argue that the tax change is unfair and would stampede thousands of workers into early retirement.
Sen. Ted Stevens (R-Alaska) has told colleagues he is "troubled" by the tax plan. Stevens has lots of federal workers in his home state and is a Senate expert on civil service matters.
The Finance Committee will handle tax reform in the Senate, and government worker groups are planning a major lobbying effort next month to keep the pension tax plan out of any bill the Senate approves.
Members of Congress who retired after any such change is made would be especially hard hit because they contribute more money to the pension system because of their higher salaries. Among members planning to retire in 1987 is House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.).
The House Ways and Means Committee tried to get an exemption from the pension tax plan for members of Congress and congressional staff members. But the House backed off because of adverse publicity