GENERAL REVENUE REVISION THURSDAY, AUGUST 13, 1953 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee met at 10 a. m., Hon. Daniel A. Reed (chairman) presiding. The CHAIRMAN. The committee will come to order. TOPIC 37-EXCLUSION OF PENSION AND RETIREMENT INCOME FOR SPECIFIC TYPES OF EMPLOYEES The committee will continue general revenue revision hearings, considering the topic of Exclusion of Pension and Retirement Income for Specific Types of Employees. We welcome as the first witnesses Mr. Robert H. Wyatt, executive secretary, Indiana State Teachers Association, representing the National Education Association, and Mr. Leonard Calhoun, counsel for the association. STATEMENT OF ROBERT H. WYATT, EXECUTIVE SECRETARY, INDIANA STATE TEACHERS ASSOCIATION, REPRESENTING NATIONAL EDUCATION ASSOCIATION, ACCOMPANIED BY LEONARD CALHOUN, COUNSEL FOR THE NATIONAL EDUCATION ASSOCIATION Mr. WYATT. Mr. Chairman and members of the committee, I am Robert H. Wyatt, executive secretary, Indiana State Teachers Association. Today I am testifying in support of H. R. 5180. I represent the National Education Association, one of America's largest professional organizations with more than 530,000 active members. The total membership of the NEA and its affiliated groups approaches 1 million educators who live in all the 48 States and in the District of Columbia and the Territories. The membership includes all types of classroom instructors from kindergarten teachers to college professors and all types of administrators and supervisors from elementary school principals to State superintendents. My statements today represent the will of these members. The NEA has long favored equitable tax relief for retired people. While we have supported proposals of limited application we are today supporting H. R. 5180 as the most defensible proposal before your committee. H. R. 5180 not only provides tax relief for teachers and other public employees, but it also helps equalize the tax treatment of all retired people. In my presentation I shall stress particularly the 37746-53-pt. 3—29 1923 concern of retired teachers. Other witnesses will deal with the need for tax relief for retirement income as it applies to other groups. I do not need to emphasize for you the economic plight of our country's teachers. I only mention their particular situation because they are one of the important groups who will obtain vitally needed tax relief under H. R. 5180. You are well aware of the fact that teachers have for many years been the poorest paid of all professional workers, and still retain that dubious honor. Actually, the income of America's teachers ranks among the lowest of any occupational group, and is inferior to that of a great many unskilled laborers. Naturally, this has a drastic and direct effect upon current and planned savings. Teachers in almost all the States and Territories must spend 4 or 5 years in college preparing for their profession. Then they start work at low salaries, receive increases slowly, and rarely reach a point where they can consider themselves economically secure. To a great extent their long years of service to the public are ignored at retirement age, and teachers are left to try to live on relatively small pensions, paid in inflated dollars and yet subject to income taxes. This tax situation calls urgently for a remedy. I believe H. R. 5180 to be that remedy. H. R. 5180 by eliminating a portion of retirement income from taxation will help to alleviate the injustices and inequities now suffered by the retired people who do not now enjoy retirement income exemptions afforded some of the aged. I know that the present exemptions were not the work of this committee. Nevertheless, these exemptions for certain groups do exist, creating unequal tax treatment between the especially exempt groups and the balance of our retired population. I think the provisions of H. R. 5180 would go a long way toward eliminating this unfairness. Current retirement incomes are not based on currently inflated prices and wages but on preinflation price and wage levels. Imagine a teacher in the mid-1930's who planned a retirement fund to mature say 20 years later. What is the 1935 dollar worth these days, once inflation and taxation get through with it? Just one example will illustrate my point here. The average annual retirement allowance for teachers in 1952 was a little over $1,000. However, $1,000 today is equivalent in purchasing power to only $522 in terms of the 1935-39 dollar. In other words, a teacher who planned to retire on $1,000 a year in 1953 finds his thousand dollars have shrunk in buying power to half that much. And still this small retirement income is subject to today's heavy taxes. I admit this is a complex problem, but we believe that your committee will not wish to ignore the ravages of inflation on static incomes and inflexible savings. Retired people on a fixed income are particularly the victims of inflation. Our teachers-retirement plan do not provide an elevator to match the climb in living costs. They have not had and cannot expect a near doubling of their pensions such as was provided beneficiaries of OASI pursuant to recommendations of your committee in 1950 and 1952. Instead they must sit back and watch inflation and taxes eat into their small pensions year by year. Recent statistics show that current costs of living have reached an all-time high. Our people who are on pensions and others not receiving OASI do not need a mass of statistics or experts to tell them what inflation means. They have learned it the hard way, by trying to live from month to month and year to year. Mr. Chairman, you are more familiar than I with the various exempt benefits such as are now granted under railroad retirement and OASI. These exemptions would not be disturbed by H. R. 5180, but the bill would within limits provide similar if not identical treatment to other retired people. As a representative of the organized teaching profession, I would like to emphasize the fact that not only the country's teachers would be aided by H. R. 5180, but also all other public employees who have given faithful and essential service to the States, municipalities, and the Federal Government, and all other retired persons, whose retirement income is currently taxed. All retired persons deserve equal tax treatment and would, I believe, receive it under the provisions of this new bill. The NEA has been striving for more than 10 years to get tax relief for retired teachers. In past Congresses, and in appeals to the Treasury Department, we have supported plans to exempt their retirement incomes from Federal taxation. We have also endorsed in past years bills to exempt the income of all public employees. As a result of more adequate study of the problem and through consultation with members of your committee we have concluded that exemption of retirement income should apply to all types of retirement income and thus provide an equitable protection for all. H. R. 5180 does exactly that; it would practically eliminate the present discrimination and would more nearly equalize the tax treatment of all retired groups. This explains our position in support of the bill. We have joined several national organizations in this stand, some of which are represented here today, and we are honored to be in their company. We feel that this broad representation indicates that H. R. 5180 contains practical and fair features which appeal to people in every walk of life. What are these features in essence? The first $1,500 received as retirement income shall be excluded from gross income in the case of all taxpayers who are at least 65 years of age and retired or who are retired under a public or private retirement plan regardless of age. However, the $1,500 exclusion is to be reduced in proportion to the taxpayer's current earnings, if he works after retirement and earns more than $900 a year. This reduction is on a sliding scale similar to OASI provisions. On April 21, 1953, we submitted to the Joint Committee on Internal Revenue Taxation a memorandum setting forth rather completely the case for establishing by law a reasonable level of tax exemption of retirement income. We have also prepared an analysis of H. R. 5180. I request that the memorandum and the analysis of H. R. 5180 be considered a part of my statement and included following my statement, in the printed record. The CHAIRMAN. Without objection, it is so ordered. Mr. WYATT. The NEA Research Division estimates that there are about 100,000 retired teachers in the United States now. These people have a total income of about $193,415,000, including a total retirement income from teacher retirement systems of about $102,315,000. The estimated average total annual income from teacher retirement systems is $1,023.15. Without going into a detailed breakdown of the various categories and age groups of retired teachers, it is easy to see that many of these people have retirement income far below current wages and inadequate to meet current living costs, and yet must still pay taxes on this retirement income. I would like to stress that fact that while these figures apply specifically to teachers, I believe that they are representative of a lot of other retired persons not now covered by a special exemption of one kind or another. Under the provisions of H. R. 5180 retired people would be able to earn up to $900 per year or $75 per month without any loss of exemption. Earnings above this amount would result in a partial reduction of the retirement-income exemption. Let us consider an example of typical tax relief under the proposed legislation. Take the case of John Smith, a retired person over age 65 without dependents whose work income if any is under $900 a year. He has a total annual income including pension plus any earnings of $2,000. Today, unless receiving OASI or railroad retirement benefits he must pay $122 in taxes. Under H. R. 5180 whether or not his retirement income is partly from OASI or railroad retirement he would pay no tax. This example illustrates how the bill would benefit retired people. As I have said, Mr. Chairman, the NEA is giving the full measure of its support to H. R. 5180 because of the need for an exemption of retirement income and the basically equalizing nature of this particular bill. Its establishment of a uniform floor of protection would guarantee all categories of retired people equal treatment. It would minimize the discriminatory effect of the exemption now in existence without repealing or otherwise affecting present exemptions. In conclusion I would like to sum up the three major considerations on which H. R. 5180 is based: 1. In the last decade and a half inflation has meant almost a doubling in living costs and current earnings, but only a comparatively small increase in retirement income. 2. When originally planned, modest retirement incomes were subject to little if any income taxes, but in recent years have been increasingly subject to income taxes. 3. Through various rulings, large groups of retired persons have gained special exemptions for all or a substantial part of their retirement income, and pay no income taxes, while other millions with comparable retirement income have no such exemption, and do pay substantial income taxes. We believe that H. R. 5180 provides an appropriate and equitable measure of tax relief to retired people. I have limited my own presentation to a very few minutes with the thought that you may wish to raise a number of questions with Mr. Calhoun. Mr. Calhoun has served as counsel and adviser to the NEA in the preparation of H. R. 5180 and the attached memorandum. Mr. Chairman, I thank you and members of the committee for the opportunity to present our case to you. (The following material was submitted for the record by Mr. Wyatt :) |