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Report: Pay should reward higher combat risk
By Andrew Tilghman - Staff writer
Posted : Monday Jul 2, 2012 15:34:43 EDT
The military’s current framework for compensating troops in combat is broken and needs to be radically overhauled, according to the newly released 11th Quadrennial Review of Military Compensation.
The report, required by law every four years, concluded that “there is little correlation between exposure to danger and compensation benefits.”
The thrust of the report affirms that while deploying to a combat zone can be generally lucrative in terms of compensation, greater danger doesn’t necessarily mean more money — in fact, far from it.
Related reading
DoD needs more flexibility to recruit, retain
Reserve pay and benefits need overhaul
Tell us
Is the system broken? What do you think of the proposals to fix it? Email us your comments. Please include your name, city, state and rank. Your comments may be used as a letter to the editor.
Take the example of a junior enlisted grunt deployed to Helmand province, Afghanistan. He’s living in a tent and getting shot at routinely, for which he gets a flat $225 per month in “hostile fire pay” and a “combat-zone tax exclusion” worth a few hundred dollars a month.
Meanwhile, a Navy O-6 assigned to Bahrain also gets a stipend, “imminent danger pay,” worth that same $225 a month. And his combat-zone tax exclusion will be worth well over $1,250 a month. Bahrain is technically part of a designated combat zone, but the Navy deems the risk to be so low that a sailor can relocate his family there, send his kids to local schools and go out drinking at local bars for happy hour.
Military data show that junior enlisted troops are far more likely to suffer serious or fatal combat injuries than troops at other paygrades. Troops at the E-3 level are roughly twice as likely to be a combat casualty, compared with an E-5 or a first-year commissioned officer, data show.
QRMC EXPLAINED
The Quadrennial Review of Military Compensation is conducted every four years by law under the direction of the White House and provides Pentagon officials with analysis and recommendations on how to improve the compensation system for the all-volunteer force. This year’s QRMC marks the 11th report since the end of the draft in 1973.
The report concluded military troops are paid well compared with civilians who have similar levels of education. After a decade of higher-than-average pay raises, military compensation for enlisted personnel is better than 90 percent of civilians in similar careers, according to the report; for officers, that drops to 83 percent of civilians.
It’s unclear which — if any — of the new report’s recommendations may become reality. Proposals on combat pay, incentive pays and reservists’ compensation would require high-level approval by the Pentagon and changes in law by Congress.
Historically, the QRMC’s record is mixed. The last one, in 2008, offered a detailed outline for changing the military’s retirement system, but that received little political support and led to no real changes.
Yet some QRMCs do have an impact. The final 1997 report recommended an overhaul of the military pay scales to boost the reward for promotion relative to time in service. That helped lay the groundwork for a series of targeted pay raises over the next few years for certain paygrades.
In 2002, the QRMC made an additional recommendation that education be considered when setting pay levels for the enlisted ranks, which also was adopted. Both proposals led to significant increases in pay for many enlisted troops.
With all that in mind, the QRMC says Congress and the Pentagon should consider a series of measures to “strengthen the relationship between combat and compensation so that combat compensation more appropriately rewards those service members who face the greatest possibility of being injured or losing their lives as a result of hostile action.”
The QRMC’s recommendations — which would require approval from Congress — call for two major changes to today’s pay plan to give more money to troops who are most often in harm’s way.
Higher hostile fire pay
One change would set hostile fire pay higher than imminent danger pay. Now, they’re both $225 per month, allowing for no monetary distinction between an infantryman deployed to the most dangerous places in the world and an administrative officer working in the Philippines, Cuba or Greece.
The QRMC also suggests that imminent danger pay could be broken down into several categories that offer more money for increased risk.
The result would be to replace today’s flat payment of $225 with a multilevel pay scale that offers more money to troops who face more danger, and less — or even no — additional money for troops who face low-level risks.
The report does not recommend any specific amounts for the new combat pays.
A new tax credit
A second and potentially more significant proposal would eliminate the current combat-zone tax exclusion and replace it with a tax credit that puts more cash in the pockets of lower-ranking troops.
The tax exclusion essentially shields military pay from federal taxes up to the highest level of monthly enlisted pay, for the service’s senior enlisted advisers. This effectively means only senior O-5s and above pay any federal taxes while in a combat zone.
But the real value of the tax exclusion is difficult to calculate and hinges on many financial factors. In general, its value increases with income level, reflecting the progressive nature of the U.S. tax code in which people who make more money pay more in taxes.
As a result, junior enlisted troops see a modest actual benefit from the tax exclusion because the tax bill on their base salary is comparatively small. The tax benefit for an E-3 amounts to less than $300 a month, for example.
In contrast, senior officers whose base pay can exceed $100,000 a year typically expect to have a large tax bill, so the exclusion provides them with a far larger windfall. For example, officers in paygrades O-4 to O-6 see a benefit of about $1,200 per month, according to a tax analysis conducted for the QRMC.
In 2009, the value of the tax exclusion ranged from a low of $280 up to $22,430. The median value was $4,600.
In fact, the calculations can be so complex that accountants can use the combat-zone tax exclusion to manipulate tax returns in a way that results in senior officers receiving thousands of dollars through the Earned Income Tax Credit, a program intended to help low-income families with children, the report said.
The tax credit provided an additional $3.6 billion to service members in 2009, far more than the total value of hostile fire pay and imminent danger pay combined.
But individual troops rarely understand the combat-zone tax exclusion’s true impact.
“The benefit to members is not easily quantified, since it depends upon the individual member’s marginal tax bracket plus the impact on a variety of federal and state programs,” the report says. “The complexity of the benefit calculated from an income tax return reduces the likelihood that an individual can compare the risks and rewards of combat.”
To make the system more equitable, the report recommends Congress pass a law converting the combat-zone tax exclusion into a clearly defined tax credit that is refundable, meaning the Internal Revenue Service will cut you a check at the end of the year if your tax credit is larger than your tax bill.
For example, if the law offered a $10,000 refundable tax credit for troops serving in a combat zone, the real effect for senior officers would be to lower their tax bill by $10,000. The real effect for junior enlisted troops would be to eliminate their entire tax bill of about $3,000, then give them a check for the remaining $7,000 at the end of the year.
However, one advantage of the tax exclusion is that the benefit adds money to each biweekly military paycheck, so families have more money upfront during a service member’s deployment.
In contrast, while a refundable tax credit may ultimately mean more money, it would not show up on a troop’s bottom line until after deployment — after annual tax returns are filed and that money arrives in the form of a refund.
Another key recommendation from the QRMC calls on the president to conduct an annual review of the list of areas eligible for imminent danger pay and the combat-zone tax exclusion.
In recent decades, the list of places where troops receive IDP has expanded to more than 50 countries — more than one in four worldwide — as well as large swaths of sea and airspace. Report: Pay should reward higher combat risk - Military News | News From Afghanistan, Iraq And Around The World - Military Times
By Andrew Tilghman - Staff writer
Posted : Monday Jul 2, 2012 15:34:43 EDT
The military’s current framework for compensating troops in combat is broken and needs to be radically overhauled, according to the newly released 11th Quadrennial Review of Military Compensation.
The report, required by law every four years, concluded that “there is little correlation between exposure to danger and compensation benefits.”
The thrust of the report affirms that while deploying to a combat zone can be generally lucrative in terms of compensation, greater danger doesn’t necessarily mean more money — in fact, far from it.
Related reading
DoD needs more flexibility to recruit, retain
Reserve pay and benefits need overhaul
Tell us
Is the system broken? What do you think of the proposals to fix it? Email us your comments. Please include your name, city, state and rank. Your comments may be used as a letter to the editor.
Take the example of a junior enlisted grunt deployed to Helmand province, Afghanistan. He’s living in a tent and getting shot at routinely, for which he gets a flat $225 per month in “hostile fire pay” and a “combat-zone tax exclusion” worth a few hundred dollars a month.
Meanwhile, a Navy O-6 assigned to Bahrain also gets a stipend, “imminent danger pay,” worth that same $225 a month. And his combat-zone tax exclusion will be worth well over $1,250 a month. Bahrain is technically part of a designated combat zone, but the Navy deems the risk to be so low that a sailor can relocate his family there, send his kids to local schools and go out drinking at local bars for happy hour.
Military data show that junior enlisted troops are far more likely to suffer serious or fatal combat injuries than troops at other paygrades. Troops at the E-3 level are roughly twice as likely to be a combat casualty, compared with an E-5 or a first-year commissioned officer, data show.
QRMC EXPLAINED
The Quadrennial Review of Military Compensation is conducted every four years by law under the direction of the White House and provides Pentagon officials with analysis and recommendations on how to improve the compensation system for the all-volunteer force. This year’s QRMC marks the 11th report since the end of the draft in 1973.
The report concluded military troops are paid well compared with civilians who have similar levels of education. After a decade of higher-than-average pay raises, military compensation for enlisted personnel is better than 90 percent of civilians in similar careers, according to the report; for officers, that drops to 83 percent of civilians.
It’s unclear which — if any — of the new report’s recommendations may become reality. Proposals on combat pay, incentive pays and reservists’ compensation would require high-level approval by the Pentagon and changes in law by Congress.
Historically, the QRMC’s record is mixed. The last one, in 2008, offered a detailed outline for changing the military’s retirement system, but that received little political support and led to no real changes.
Yet some QRMCs do have an impact. The final 1997 report recommended an overhaul of the military pay scales to boost the reward for promotion relative to time in service. That helped lay the groundwork for a series of targeted pay raises over the next few years for certain paygrades.
In 2002, the QRMC made an additional recommendation that education be considered when setting pay levels for the enlisted ranks, which also was adopted. Both proposals led to significant increases in pay for many enlisted troops.
With all that in mind, the QRMC says Congress and the Pentagon should consider a series of measures to “strengthen the relationship between combat and compensation so that combat compensation more appropriately rewards those service members who face the greatest possibility of being injured or losing their lives as a result of hostile action.”
The QRMC’s recommendations — which would require approval from Congress — call for two major changes to today’s pay plan to give more money to troops who are most often in harm’s way.
Higher hostile fire pay
One change would set hostile fire pay higher than imminent danger pay. Now, they’re both $225 per month, allowing for no monetary distinction between an infantryman deployed to the most dangerous places in the world and an administrative officer working in the Philippines, Cuba or Greece.
The QRMC also suggests that imminent danger pay could be broken down into several categories that offer more money for increased risk.
The result would be to replace today’s flat payment of $225 with a multilevel pay scale that offers more money to troops who face more danger, and less — or even no — additional money for troops who face low-level risks.
The report does not recommend any specific amounts for the new combat pays.
A new tax credit
A second and potentially more significant proposal would eliminate the current combat-zone tax exclusion and replace it with a tax credit that puts more cash in the pockets of lower-ranking troops.
The tax exclusion essentially shields military pay from federal taxes up to the highest level of monthly enlisted pay, for the service’s senior enlisted advisers. This effectively means only senior O-5s and above pay any federal taxes while in a combat zone.
But the real value of the tax exclusion is difficult to calculate and hinges on many financial factors. In general, its value increases with income level, reflecting the progressive nature of the U.S. tax code in which people who make more money pay more in taxes.
As a result, junior enlisted troops see a modest actual benefit from the tax exclusion because the tax bill on their base salary is comparatively small. The tax benefit for an E-3 amounts to less than $300 a month, for example.
In contrast, senior officers whose base pay can exceed $100,000 a year typically expect to have a large tax bill, so the exclusion provides them with a far larger windfall. For example, officers in paygrades O-4 to O-6 see a benefit of about $1,200 per month, according to a tax analysis conducted for the QRMC.
In 2009, the value of the tax exclusion ranged from a low of $280 up to $22,430. The median value was $4,600.
In fact, the calculations can be so complex that accountants can use the combat-zone tax exclusion to manipulate tax returns in a way that results in senior officers receiving thousands of dollars through the Earned Income Tax Credit, a program intended to help low-income families with children, the report said.
The tax credit provided an additional $3.6 billion to service members in 2009, far more than the total value of hostile fire pay and imminent danger pay combined.
But individual troops rarely understand the combat-zone tax exclusion’s true impact.
“The benefit to members is not easily quantified, since it depends upon the individual member’s marginal tax bracket plus the impact on a variety of federal and state programs,” the report says. “The complexity of the benefit calculated from an income tax return reduces the likelihood that an individual can compare the risks and rewards of combat.”
To make the system more equitable, the report recommends Congress pass a law converting the combat-zone tax exclusion into a clearly defined tax credit that is refundable, meaning the Internal Revenue Service will cut you a check at the end of the year if your tax credit is larger than your tax bill.
For example, if the law offered a $10,000 refundable tax credit for troops serving in a combat zone, the real effect for senior officers would be to lower their tax bill by $10,000. The real effect for junior enlisted troops would be to eliminate their entire tax bill of about $3,000, then give them a check for the remaining $7,000 at the end of the year.
However, one advantage of the tax exclusion is that the benefit adds money to each biweekly military paycheck, so families have more money upfront during a service member’s deployment.
In contrast, while a refundable tax credit may ultimately mean more money, it would not show up on a troop’s bottom line until after deployment — after annual tax returns are filed and that money arrives in the form of a refund.
Another key recommendation from the QRMC calls on the president to conduct an annual review of the list of areas eligible for imminent danger pay and the combat-zone tax exclusion.
In recent decades, the list of places where troops receive IDP has expanded to more than 50 countries — more than one in four worldwide — as well as large swaths of sea and airspace. Report: Pay should reward higher combat risk - Military News | News From Afghanistan, Iraq And Around The World - Military Times
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