Public employe organizations are reasonably confident that when the Senate and House reach agreement on a final tax reform bill, they won't set a July 1 effective date for pension tax changes.
Organizations representing 20 million government workers and some private employes have fought for months to preserve the recovery rule governing taxes on pensions. It allows retirees to get back their previously taxed pension contributions before they begin paying taxes on their annuities.
While it is billed as a federal retiree benefit, most of the people covered by the rule are state and local government workers, teachers, or employes of private firms who help finance their own retirement.
The organizations, which range from hard-nosed postal unions and teachers organizations to groups representing government managers and executives, have two reasons to be optimistic that the tax change won't be suddenly thrust on workers.
First, although the Senate Tuesday night rejected an amendment by Sens. Paul Trible (R-Va.) and Paul Sarbanes (D-Md.) to protect the recovery rule, the senators picked up 12 more votes than they anticipated. They had hoped to get at least 30 members to go along with their resolution. In fact the vote was 57 to 42 against their pension-protecting plan.
Second, among the people who would be hurt most financially by a sudden change in pension tax rules are senior members and staff members of the Senate and House who will be retiring early next year. The pension tax change, which the House bill would make effective next month, would force them to begin paying taxes right away on a prorated share of benefits from the government contribution to their retirement program.
U.S. officials expect a record number of retirements this month as nervous workers leave to beat the pension tax change deadline proposed by the House.
But congressional insiders now say that given the Senate action this week, the July 1 deadline is unlikely to become law. More likely, they said, is that tax bill conferees will try to protect the pensions of colleagues who are about to retire by making the change effective sometime next year, or even later.