Virginia Republican Sens. Paul Trible and John Warner are trying to persuade their colleagues to bury a section of the House-passed tax reform bill they contend could push up to 200,000 of the government's "most valuable" employes into retirement early this summer.
In a letter to Sen. Bob Packwood (R-Ore.), whose Senate Finance Committee is working on its own version of the tax reform bill, Trible and Warner warned that eliminating the three-year, tax-free period for retiring government workers would adversely affect 20 million persons who contribute to their own retirement plans.
The senators said that of 210,000 federal workers now eligible to retire, between 75 and 90 percent might quit early if the law is changed.
"We cannot emphasize too strongly that these are the employes most valuable to the government," the senators said.
Many of them are experienced air traffic controllers, Veterans Administration medical personnel and government scientists and technicians "whom we have had the hardest time retaining," they added.
The senators are concerned about a section of the Democratic version of the tax reform bill that would eliminate the rule allowing for three tax-free years after retirement for federal workers, state and local employes, teachers and others whose financial contributions to their pension plans have already been taxed as part of salary.
The employes typically base a lot of their financial planning on the tax-free period, using it to cash in stocks or bonds or to take other jobs.
Under current law, federal workers and others who contribute to their pension plans don't pay federal taxes on their annuities until they get back all the money they put in it. That tax-free period typically lasts 18 months, but it can run as long as three years.
Government employes contribute at least 7 percent of their salaries to the civil service retirement fund.
The House tax reform bill would eliminate that tax-free period starting in July.
If approved, it would mean that employes retiring after then would have to pay federal taxes on a portion of their annuities, pro-rated on their life expectancies.
Backers of the plan say retirees wouldn't pay any more taxes than anticipated over a normal lifetime, but would begin paying taxes sooner than they expected.
One of the best things federal-postal workers have going for them is the fact that the pension tax change also would hit many senior congressional staffers and members of Congress -- including House Speaker Thomas P. O'Neill Jr. (D-Mass.).
The House tried, unsuccessfully, to exempt members of Congress from the pension tax change, but backed off because of unfavorable publicity.
The Reagan administration favors the change.
But Trible and Warner hope to persuade the Republican-dominated Senate to keep it out of the Senate tax bill and Senate-House conferees to remove it from any final version they approve. Job Mart
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