DEFENSE Secretary Caspar Weinberger's suggestion to exempt the the first $20,000 of military pay from the defense income tax is the first such proposal to surface in this administration, but it may not be the last. Rather than appearing on the budget ledger as higher spending, this way of increasing military takehome pay would appear as lower taxes. Tax exemptions, moreover, do not translate into higher pensions.
But beware. Offering subsidies through the tax system entails hidden costs. One of these is that removing thing from the spending side of the budget tends to remove them from public scrutiny. Debate is sharp on spending programs for day care and health. But when did you last hear discussion of the subsidies provided by tax credits and deductions for child care and health insurance?
Tax subsidies are also unlikely to hit the right target with the right amount of fire. House Budget Committee Chairman James Jones has already indicated his well-founded hesitation to use across-the-board military pay increases to deal with the selective problem of attracting and holding people with scarce skills. Tax subsidies are an even clumsier tool.
Because the tax system is progressive, moreover, uniform exemptions favor those who need them less, other things being equal. Excluding the first $20,000 of pay from income tax would be worth little or nothing to the lowest paid personnel or to those with large numbers of dependents. The Congressional Budget Office estimates, for instance, that with the two pay increases proposed by the administration for this year, a sergeant who has six years' experience and three dependents and who takes home $15,995 (including allowances and after taxes) would save only $530, his current income tax liability, through a tax exemption. But a brigadier general taking home $44,886 would save $7,880. The exemption would be worth even more to personnel with working spouses or outside investment income.
If there are reasons to increase salaries proportionately more in the higher grades, they should be argued and pay scales adjusted accordingly. We do not happen to recall anyone claiming that generals were leaving because of the pay. In any event, there is no call to make such changes through the tax system.