Members of the House Ways and Means Committee, in voting to tighten taxation of federal pensions as part of a major tax-revision bill, quietly exempted members of Congress and their staffs.
The 535 current members of the House and Senate and their aides, unlike all future federal retirees, would be allowed to continue the current policy of collecting pensions tax-free in the early years of retirement, then paying taxes later when pension payments exceed the amount they paid into the pension fund.
The bill, scheduled to reach the House floor next week, would require other federal retirees to pay taxes annually on a portion of their pensions from the beginning, in a "blended" approach.
Reports widely circulating on Capitol Hill said the exemption was made at the request of Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), who was concerned that, among other reasons, House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) would have to pay taxes on his pension as soon as he retires in 1987.
A spokesman for O'Neill said he was not aware that the speaker had been involved in the exemption. Ways and Means staff aides had no immediate comment.
The proposed change has infuriated federal workers' unions and organizations, which say it would seriously disrupt their members' retirement plans. Representatives of those groups said yesterday that exempting members of Congress makes the proposal even more inequitable.
"I would be amazed if they did that," said Blair Childs, executive director of the senior executive association. "I would be amazed. It would be very self-serving."
"We consider the provisions unfair for those who are in the pipeline, who have made their plans to retire," said an official of the American Federation of Government Employes. "Obviously, it's unfair that they managed to exempt themselves."
Reps. Steny H. Hoyer (D-Md.) and Vic Fazio (D-Calif.) are scheduled to appear before the House Rules Committee Tuesday to suggest a House floor amendment that would delete the provision.
It was unclear yesterday how the exemption crept into the bill.
It is not mentioned in a committee news release describing the retirement provisions of the legislation, nor was it mentioned by committee aides briefing reporters on the Ways and Means action. Much of the drafting of the bill took place during Thanksgiving week.
Neither was it apparent whether the Rules Committee would permit the Hoyer-Fazio amendment to be offered.
The change in the federal-worker pension system would raise an estimated $8 billion in tax revenue over five years, money needed to help offset the revenue loss from reducing tax rates.
The exemption appears on page 861 of the 1,363-page measure. It makes no mention of Congress members or staff. Instead, in a time-honored congressional tradition, it defines those covered by the exemption in a way that can only fit current lawmakers and aides.
The bill says that employes who chose before Nov. 22, 1985, to participate in the plan and whose contributions are of a fixed amount are exempt from the new tax treatment.
The key, according to congressional lawyers, is the concept of choice: only legislators and their staffs, as well as state legislators involved in state-funded retirement plans, can choose whether they wish to be covered by federal retirement or another pension scheme, such as Social Security.
Because members of the federal civil service are required to join the federal retirement system, the exception applies only to elected officials and their staff.