The committee can see that the bill is directed toward the aid of low-income groups with static retirement income and little or no current earnings after retirement. Teachers belong in this group of taxpayers. The National Council on Teacher Retirement therefore urges this committee to recommend the passage of H. R. 5180.

The CHAIRMAN. Thank you very much for that very fine statement, Mr. Wood.

Are there any questions? The Chair hears none.

(The matter submitted for the record by Mr. Wood is as follows:)

MEMORANDUM ON THE FEDERAL INCOME TAX OF RETIRED TEACHERS'

Table A shows the findings in an income-tax study based on reports from retired teachers in 33 States. The data were estimated for 100,000 retired teachers in all States from 9,866 returns from 32 States. (See note at bottom of table A.) This estimate leads to the following conclusions.

In 1952 the average retirement income was $1,023.15. The retirement income was 52.9 percent of the total income, which, on the average, was $1,934.15. It was estimated that 100,000 retired teachers in the United States paid $11,438,000 in Federal income taxes; the average tax was estimated at $114.38. Over 57,000 of the 100,000 paid no tax in 1952.

Detailed breakdowns of the data were possible for 9,866 reports from 32 States. One breakdown reflects the application of the 3-percent rule. This rule excludes from gross income the amount the retired teacher has contributed to the re tirement system. Ordinarily, by the end of the third year the exclusions under the 3 percent rule have consumed the total contributed by the retired teacher during active service. Therefore, the data were tabulated for those who retired in 1949 or earlier and those who retired since 1949. Although the group who had retired in 1949 or earlier was almost three times as large as the group who had retired since 1949, the two groups showed a similar average retirement income. Those who had retired since 1949 had a slightly higher average total income than those who retired in 1949 or earlier and, therefore, paid a higher average tax. In both groups, however, more than one-half paid no Federal income tax.

A second breakdown was made on the basis of age so that those 65 years of age or over could be separated from those under 65. Taxpayers age 65 or over have the benefit of the double personal exemption and this benefit would affect the tax due.

Among those who retired in 1949 or earlier, the average retired teacher age 65 or over paid taxes in 1952 of slightly over $75, while those under age 65 who retired in 1949 or earlier paid more than twice that amount of tax.. In the group retired since 1949 the average tax paid by those age 65 or over was about $105, while those who retired since 1949, but were under age 65 in 1952, paid about $176 in Federal income taxes.

The amount of tax paid depends also upon the number of exemptions claimed. Of the total for whom this information is available, 75 percent had no dependents and claimed his own personal exemption (or exemptions) only. With 1 exception the division as to age and date of retirement showed that the number claiming 2 exemptions was one-fourth the number claiming an exemption for himself only, and the number claiming 2 additional exemptions was relatively small. The exception to this generalization may be found in the group retired since 1949 who were age 65 or over in 1952. In this group those who claimed an exemption for himself only numbered 3 times as many as those who claimed 1 other exemption.

H. R. 5180 refers to the tax which will be due on 1953 income. The data in this study were collected on 1952 income. The tax rate on 1953 income is slightly lower than the tax rate that was applicable to 1952 income.

1 Prepared by the research division of the National Education Association. Forms to be used in collecting information were sent to approximately 1 out of 5 teachers retired from most of the State teacher-retirement systems. Several States were unable to cooperate. Returns were received from 9,866 retired teachers in 32 States; 1 other State. Ohio, had conducted a similar investigation previously and made its report available to the research division.

The CHAIRMAN. The next witness is Rear Adm. Allen P. Mullinnix, United States Navy Retired Officers Association.

Admiral, we are very glad to have you here. If you will give your name and the capacity in which you appear, we will be glad to hear

you.

STATEMENT OF REAR ADM. ALLEN P. MULLINNIX, UNITED STATES NAVY RETIRED OFFICERS ASSOCIATION

Admiral MULLINNIX. Mr. Chairman and members of the committee, I am Rear Adm. Allen P. Mullinnix, United States Navy, retired, assistant legislative counsel of the Retired Officers Association.

Vice Adm. H. G. Hamlet, United States Coast Guard, retired, president of our association, would present our statement if he were able to be present today.

Several bills have been introduced in the present Congress which would effect the exclusion of some part of the retirement income of retired officers of the uniformed services. The Retired Officers Association has asked to be heard on these bills, and we appreciate the opportunity to appear here today and present our views on the subject briefly in the abstract rather than in relation to those particular bills.

Our association strongly endorses the proposition that all, or a substantial proportion, of the retired pay of the uniformed servicesArmy, Navy, Air Force, Marine Corps, Coast Guard, Coast and Geodetic Survey, and Public Health Service-be excluded from gross income for tax purposes for the following reasons:

(1) Upon retirement the income of retired personnel of the uniformed services is drastically cut, and is often inadequate decently to support and maintain the members of this group, who have devoted their lives to the uniformed services under circumstances which would preclude them, while in active service, from augmenting their income. Since the income while on active duty is fixed and cannot be augmented, and the income is not in an amount sufficient to provide savings for their retirement after completion of active duty, this group must rely solely on their retired pay to support themselves and their families.

(2) When personnel of the uniformed services are retired they receive a percentage, dependent on the nature of their retirement, not of their total income while on active duty, but only of their basic pay. The compensation of personnel of the uniformed services, under pay laws which have existed since 1922, is not a fixed amount of pay for each rank and period of service, but is made up of basic pay plus taxfree allowances for rental and subsistence. When personnel are retired these tax-free allowances for rental and subsistence cease entirely, and they receive a percentage only of their basic pay. For those on active duty, since 1922, the basic pay provided in the various pay laws has always been recognized to be inadequate, hence these allowances. Prior to the 1922 pay bill there were no such allowances and the pay was considered to be adequate. Under those former laws retired personnel received a percentage of the pay, which in the main provided adequate retired compensation. Furthermore, prior to 1916 there were no income taxes. From 1916 to 1922 very small income taxes prevailed and the cost of living was but a fraction of what it is today.

If it is to be conceded that basic pay since 1922 has been inadequate, as such, for personnel of the uniformed services on active duty without the addition of allowances for rental and subsistence, then the payment of a percentage merely of the basic pay to the retired groups must necessarily be recognized as inadequate for them, and to subject those amounts to income tax payment in whole or in part has worsened a bad situation.

(3) At the present time the retired pay of those retired for physical disability is either wholly excluded from gross income for incometax purposes, or partially excluded dependent on the degree of disability as established in accordance with the requirements of the Career Compensation Act of 1949. The effect of our recommendation would be to increase the tax exclusion of this group, whose retired pay is not fully excluded for tax purposes. Our recommendation, of course, would have the same effect in excluding the retired pay of those not retired for physical disability to the extent that Congress grants such exclusion. Certainly it may safely be said that many of this latter group should, due to age or other infirmities, be regarded as not physically qualified for gainful employment under modern standards. After retirement the great majority of this group are unemployable, and are in fact unemployed. Consequently they cannot augment their retired pay and must depend on their retired pay solely for their livelihood.

(4) Our recommendation is not new. During wartime the Congress has granted an exclusion of part of the pay of active-duty personnel from gross income for tax purposes ($1,500 in World War II). It is interesting to note in this connection that a large proportion of retired personnel were recalled to active duty and therefore most retired personnel received the benefit of that tax exclusion. Consequently, the situation was not as acute then as it is today and the reason for tax exclusion not so evident.

(5) There is precedent for excluding retired pay from gross income for income-tax purposes. It is excluded in the cases of social-security and railroad-retirement payments. Whatever reason justifies such exclusion in those two cases would also seem to justify the principle in all retirement systems.

(6) Some who are not fully familiar with the subject sometimes say that the retirement pay of retired personnel is a gratuity to which members of the group make no contribution. Such is not the case. While it is true there is no transfer of cash or bookkeeping entry monthly as in the cases of railroad retirement and social security, there is a payment in service, not otherwise remunerated, and in effect the active-duty pay is less than it would necessarily be if an annuity for retired pay were to be provided for by a cash payment. Payment in money is not the only compensation which can be given to establish a right. Payment for these retirement rights in service over the years under pay scales lower than would have been necessary to support a contributory retirement system is evident. This question was specifically under consideration by the Hook Commission which studied whether retirement systems should be contributory or noncontributory, and after most careful study concluded there should not be a contributory system, and they adjusted the pay scales accordingly. In view of the above the Retired Officers Association strongly recom