Rep. Frank Wolf (R-Va.) says the government faces an unprecedented talent/brain drain unless the Senate quickly rejects a part of the House-passed tax reform bill that would put an immediate tax bite on pension checks of public employes who retire this summer.
Wolf wrote to Senate Finance Committee Chairman Bob Packwood (R-Ore.) saying that a number of experienced scientists, engineers and technicians with the National Aeronautics and Space Administration are prepared to retire early if the tax change goes in effect. He added that other agencies are reporting an increase in retirement queries from key employes, which he said represents "a real threat to some key programs . . . governmentwide."
The House version of tax reform -- which the Senate will take up shortly -- would eliminate as of July the tax-free period for retired federal workers, postal employes, state and county workers and teachers, and others who contribute to their retirement funds.
Currently, retired workers who contributed to their own pension plans do not pay any federal taxes until they recover their contributions because they paid taxes on their contributions while working.
The tax-free period can last up to three years under current law. For the typical civil service retiree it lasts about 18 months.
The House tax plan would require workers retiring after July 1 to begin immediately paying taxes, prorated on their life expectancy. The change would not increase an individual's taxes over the period of a normal retirement. However, it would mean an up-front bite that the Federal Government Service Task Force estimates at $10,000 over three years for the typical federal worker. Because so many workers have made the postretirement tax-free period part of their planning, many have said they would retire if the "reform" approved by the House becomes law.
Wolf, who represents a large bloc of federal workers, says that 210,000 of the government's 2.8 million civilians are eligible to retire right now.
He told Packwood that 42 percent of NASA's scientists and engineers could retire now, as could 16 percent of all air traffic controllers, 6 percent of the FBI's most senior agents and 50 percent of the government's career senior executives.
Wolf urged the Senate Finance Committee to calm the fears of longtime government employes by sending an "early signal" that it will reject the pension tax plan.