[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                       HEROES EARNINGS ASSISTANCE
                       AND RELIEF TAX ACT OF 2007

=======================================================================

                             JOINT HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                  and

                            SUBCOMMITTEE ON
                   INCOME SECURITY AND FAMILY SUPPORT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 17, 2007

                               __________

                           Serial No. 110-63

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY C. HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                Subcommittee on Select Revenue Measures

                RICHARD E. NEAL, Massachusetts, Chairman

LLOYD DOGGETT, Texas                 PHIL ENGLISH, Pennsylvania
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
ALLYSON Y. SCHWARTZ, Pennsylvania    JOHN LINDER, Georgia
JIM MCDERMOTT, Washington            PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois
EARL BLUMENAUER, Oregon

                                 ______

           Subcommittee on Income Security and Family Support

                  JIM MCDERMOTT, Washington, Chairman

FORTNEY PETE STARK, California       JERRY WELLER, Illinois
ARTUR DAVIS, Alabama                 WALLY HERGER, California
JOHN LEWIS, Georgia                  DAVE CAMP, Michigan
MICHAEL R. MCNULTY, New York         JON PORTER, Nevada
SHELLEY BERKLEY, Nevada              PHIL ENGLISH, Pennsylvania
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of October 10, 2007, announcing the hearing.............     2

                               WITNESSES

The Honorable Susan A. Davis, a Representative in Congress from 
  the State of California........................................    10
The Honorable Nick Lampson, a Representative in Congress from the 
  State of Texas.................................................    13
The Honorable Walter B. Jones, a Representative in Congress from 
  the State of North Carolina....................................    16
David A. Rust, Acting Deputy Commissioner, Disability and Income 
  Security Programs, Social Security Administration..............    23
John F. Downing, President and Chief Executive Officer, United 
  Veterans of America, Inc., Leeds, Massachusetts................    36
Victoria C. Johnson, widow of Major Alan R. Johnson, U.S. Army 
  Reserve, Yakima, Washington....................................    40
John McAuliffe, Connecticut State Director, National Volunteer 
  Fire Council, Wethersfield, Connecticut........................    44
Jessica Perdew, Deputy Director of Government Relations, National 
  Military Family Association, Alexandria, Virginia..............    50
Michelle D. LaRock, Deputy Director of Program Development, 
  Division of Veterans' Affairs, State of New York, Albany, New 
  York...........................................................    54

                       SUBMISSIONS FOR THE RECORD

California Department of Veterans Affairs, letter................    61
Corporation for National and Community, statement................    62
Jerry Patterson, Texas Land Commissioner and Chairman, Texas 
  Veterans Land Board, statement.................................    62
Lori A. Brown, Military Spouse, statement........................    64
Max Stier, Partnership for Public Service, statement.............    65
National Multi Housing Council and National Apartment 
  Association, letter............................................    66
The Honorable Joe Courtney, a Representative in Congress from the 
  State of Connecticut, statement................................    68
The Honorable Tom Davis, a Representative in Congress from the 
  State of Virginia, statement...................................    69


                       HEROES EARNINGS ASSISTANCE
                       AND RELIEF TAX ACT OF 2007

                              ----------                              


                      WEDNESDAY, OCTOBER 17, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
        Subcommittee on Income Security and Family Support,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 1100, Longworth House Office Building, Hon. Richard E. 
Neal (Chairman of the Subcommittee on Select Revenue Measures) 
presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
October 10, 2007
SRM-7

             Neal and McDermott Announce a Joint Hearing on

                  the ``Heroes Earnings Assistance and

                        Relief Tax Act of 2007''

    Congressman Richard Neal (D-MA), Chairman of the Subcommittee on 
Select Revenue Measures, and Congressman Jim McDermott (D-WA), Chairman 
of the Subcommittee on Income Security and Family Support, today 
announced a joint hearing on legislation soon to be introduced H.R. __ 
, called the ``Heroes Earnings Assistance and Relief Tax Act of 2007.'' 
The hearing will take place on Wednesday, October 17, 2007, at 10:00 
a.m. in room 1100, Longworth House Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Committee has jurisdiction over certain tax and other 
provisions that are intended to benefit our military, volunteer 
firefighters, and other service volunteers. Some of the tax provisions 
are set to expire at the end of the year and must be addressed. Other 
provisions need to be simplified.
      
    The ``Heroes Earnings Assistance and Relief Tax Act'' would make 
the following changes: (1) make permanent the provision that permits 
active duty individuals to make penalty-free withdrawals from 
retirement plans; (2) make permanent and modify qualified mortgage 
bonds used to finance residences for veterans; (3) make permanent the 
ability to include combat pay as earned income for purposes of the 
Earned Income Tax Credit (EITC); (4) extend the limitation period for 
filing tax refund claims resulting from Department of Veterans Affairs 
(DVA) disability determinations; (5) make permanent the authority of 
the Social Security Administration to disclose tax return information 
to the Department of Veterans Affairs for purpose of determining 
eligibility for certain veteran programs; (6) permit recipients of 
military death benefit gratuities to roll over the amounts received, 
tax free, to a Roth IRA or an Education Savings Account; (7) permit an 
employer to make certain contributions to a qualified plan on behalf of 
an employee who was killed in combat; (8) for purposes of meeting the 
requirements of the Uniformed Services Employment and Reemployment 
Rights Act (USERRA), treat the day prior to the date of death as the 
date the employee returned to work for purpose of triggering payment of 
survivor benefits (or other beneficiary payments) under a qualified 
plan; (9) treat differential wage payments made by an employer to an 
employee who becomes active duty members of the uniformed services as 
wages for retirement plan purposes; (10) clarify the tax treatment for 
certain rebates of deductible State and local taxes for volunteer 
firefighters; (11) exclude certain reimbursed expenses that are 
incurred in the line of duty for volunteer firefighters; (12) clarify 
the application of the ``5-year requirement with respect to the sale of 
a principal residence for Peace Corps volunteers''; (13) provide 
equitable treatment of most military cash allowances, beyond basic pay, 
for purpose of determining eligibility and benefit amounts for military 
families; (14) disregard certain annuity payments paid specifically to 
blind veterans for purpose of determining Supplemental Security Income 
(SSI) eligibility and benefits under the SSI program; and (15) 
disregard any benefits or allowances paid to Americorps volunteers for 
purpose of determining eligibility and benefits under the SSI program.
      
    In announcing the hearing, Chairman Neal stated, ``We cannot forget 
the everyday needs of our military families and other American heroes 
serving their country honorably in Iraq and around the globe. I believe 
we have an obligation to examine the Internal Revenue Code to make 
certain it is working in an effective way for these brave individuals. 
This proposed legislation is another example of our commitment to the 
men and women who wear the uniform of the United States armed forces 
each day with dedication and distinction.''
      
    Chairman McDermott stated, ``We don't want to leave those who 
defend our country defenseless against being hit by unfair taxes or 
reductions in needed benefits, and we are going to serve our military 
heroes in this legislation by correcting inequities that are simply 
inconceivable.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on legislative proposals designed to help 
members of our armed forces and their families, as well as others 
volunteering in service to America.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=18). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business October 31, 
2007. Finally, please note that due to the change in House mail policy, 
the U.S. Capitol Police will refuse sealed-package deliveries to all 
House Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days' notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman NEAL. Let me call this hearing to order.
    This country is fortunate that so many soldiers and sailors 
have been willing to sacrifice for our defense. That sacrifice 
often comes in different forms. For the Reservist or member of 
the National Guard who is called up to duty for extended 
periods, it can mean stepping off the career ladder or 
shuttering their own business. For the husband or wife of an 
active duty soldier, sacrifice can mean managing the household 
as a single parent. As the mother, father, or child of someone 
serving our country, sacrifice can mean losing a loved one.
    We have all witnessed the depth of this sacrifice as we 
tour local military hospitals, visit veterans assistance 
centers, or attend funerals. Just last week, another young son 
from Massachusetts was lost. Army Private Kenneth Iwasinski was 
killed by an IED in Baghdad. He was scheduled to return home 
earlier this year, but his tour was extended. Kenneth was the 
78th fallen hero from my home State, and I extend my deepest 
sympathies to his parents, Tracy Taylor of Chickami, 
Massachusetts, and Dominic Iwasinski of Belchertown, 
Massachusetts.
    You do not have to look far in any city or town in America 
to find extraordinary service and sacrifice for our country. It 
has been said that in war there are no unwounded soldiers. This 
could probably apply to many military families as well.
    It is truly a shared sacrifice, even when only one member 
of the family has volunteered their service. The family can 
suffer financially as well as emotionally during extended 
tours. It is the responsibility of this Committee to ensure 
that the Tax Code and other income security provisions do not 
create problems, but rather solve them so that families and 
soldiers can heal emotionally, physically, and financially and 
move on with their lives.
    Today the Select Revenue Measures Subcommittee, along with 
the Income Security and Family Support Subcommittee, will hear 
from a variety of witnesses on draft legislation to extend, 
modify, and create a number of incentives to assist these 
families that have sacrificed so much for us.
    This legislation would make permanent the current provision 
waiving the 10 percent withdrawal penalty for those called up 
to active duty who need to tap into retirement accounts. We 
have Representative Lampson to thank for this one, and he will 
be testifying before us today. The drafts would also allow 
families to roll over amounts received as death gratuity 
payments in Roth IRAs or Education Savings Accounts, an idea 
from Representative Walter Jones, who will be before us as 
well.
    The draft makes a number of changes relating to 
Supplemental Security Income, or SSI, eligibility, military 
service, which is based upon suggestions from Representative 
Susan Davis, who joins us today, and Representative Tom 
Reynolds, a senior Member of this Committee.
    Already a number of Members, including Representative Nancy 
Boyda, Representative Zach Space, Representatives Gabrielle 
Giffords and Bruce Braley, have filed legislation to make 
permanent the special rule treating combat pay as earned income 
for purposes of the Earned Income Tax Credit, or EITC.
    The draft bill we are discussing today includes that 
important provision, and we thank those Members for championing 
this issue. The draft bill will provide a number of changes to 
allow employers the flexibility to extend benefits to workers 
called up for duty, and will expand certain provisions that 
provide mortgage assistance to veterans through qualified bond 
programs.
    The draft bill also includes incentives for those who 
volunteer their service Stateside, such as firefighters and 
emergency responders, as has been suggested in legislation by 
Mr. Larson.
    As you can see, we have reviewed a number of good 
suggestions from Members of the House and this Committee, and 
we are still doing so. It is our hope that a final bill will be 
a bipartisan product that the full Committee can mark up in the 
next few weeks.
    To assist us today in understanding all of these 
provisions, we welcome today our first panel, Representative 
Davis, Representative Lampson, and Representative Jones.
    Our second panel will include Mr. David Rust, the Acting 
Deputy Commissioner for Disability and Income Security Programs 
at the Social Security Administration. Mr. Rust will discuss 
the SSI provisions under consideration.
    And on our third panel, we will welcome Jack Downing, 
President and Chief Executive Officer of the United Veterans of 
America, based in Leeds, Massachusetts. Mr. Downing heads an 
early intervention program to assist recently returned veterans 
in transitioning back to the workforce.
    We will also hear from Ms. Victoria Johnson of Yakima, 
Washington, who lost her husband earlier this year and almost 
lost his retirement savings as well. We will hear from Mr. John 
McAuliffe, the Connecticut State Director of the National 
Volunteer Fire Council from Wethersfield, Connecticut.
    And we will hear from Ms. Jessica Perdew representing the 
National Military Family Association in Alexandria, Virginia. 
From Albany, New York, we are pleased to be joined by Ms. 
Michelle LaRock, the Deputy Director of Program Development at 
the Division of Veterans' Affairs, who will discuss the State 
annuity program for line veterans.
    And now I would like to recognize and turn to Chairman 
McDermott for his opening statement. Mr. McDermott.
    Mr. MCDERMOTT. Thank you very much, Mr. Chairman.
    The brave women and men serving in our armed forces deserve 
nothing less than our respect and full support for the 
tremendous sacrifices that they and their families make as they 
honorably defend their country. Whether they are completing 
their tours of duty or returning home with a service-related 
injury, they need to know that their government is on their 
side.
    The last thing they need and deserve is to be hit with 
unfair taxes and reductions in Federal benefits during their 
time of need. It is inconceivable to me that some military 
servicemembers and their families are not getting the benefits 
they are entitled to because of disparate treatment in the Tax 
Code or a Federal disability program. They earn every benefit 
that is available to them, many times over. We can and should 
enact legislation quickly to ensure that military families are 
treated fairly.
    The purpose of this hearing, as you have heard, is to 
consider proposals that would provide greater equity in the Tax 
Code and in the Supplemental Security Income program for the 
men and women serving in the armed forces and their families, 
and also ensure assistance to other Americans who selflessly 
volunteer to serve communities across this Nation and the 
world.
    Chairman Rangel is preparing legislation he will introduce 
soon that will eliminate many of the inequities that currently 
exist in the tax law and the Supplemental Security Income 
program that create hardships for military personnel and 
volunteers. The proposal, which will be titled the Heroes 
Earnings Assistance and Relief Tax Act, or the HEART Act, would 
bring fair tax treatment to those individuals and their 
families in a number of ways.
    For example, the proposal would permanently extend the 
option for military families to include combat pay as earned 
income for the purposes of calculating the Earned Income Tax 
Credit. This option is currently scheduled to sunset at the end 
of the current year. The Earned Income Tax Credit provides 
financial assistance for vulnerable military families who 
experience financial hardships as a result of a servicemember's 
deployment.
    The financial support would provide a servicemember with 
the comfort of knowing that his or her family is receiving some 
additional income to assist them while they are away defending 
their country. This is the least we can do for families who are 
sacrificing so much.
    The Chairman's proposal would also make several 
improvements to the Supplemental Security Income program, 
commonly called SSI, to better assist servicemembers and their 
families. The SSI program provides critical benefits to 
millions of elderly and disabled Americans who have low incomes 
and limited resources, including military servicemembers with 
disabled spouses or children.
    Some military families who rely on SSI for critical 
financial support may lose a portion of their benefits because 
of the unfair treatment of certain types of military cash 
allowances in determining a disabled spouse or child's 
eligibility for assistance under the program.
    Unlike civilian wages, some military payments are subject 
to less favorable treatment under the SSI program. Most 
allowances and bonuses paid to servicemembers beyond their 
basic pay are counted as unearned income under the SSI program. 
This treatment effectively reduces, and in some cases 
eliminates, SSI benefits for thousands of military families.
    To address this inequity, earlier this year I joined with 
Representative Susan Davis from San Diego in introducing 
legislation to eliminate the unfair treatment of military 
allowances when calculating SSI program eligibility and benefit 
amounts. The bill would result in higher benefit amounts and 
would increase access to the program for some servicemembers 
and their families.
    I am pleased that Chairman Rangel is planning to include 
provisions from that bill into the military package that he is 
preparing. This change will go a long way in helping 
servicemembers who need the financial support, and the 
additional health coverage that generally comes with it, to 
care for a disabled member of their family. I am also pleased 
that our colleague, Ms. Davis, is here with us today to lend 
her support for these important provisions.
    The Chairman's plan would also include bipartisan 
legislation that was introduced by Representative Tom Reynolds 
that would remove penalties for blind veterans who receive 
State annuity payments. The Act would exempt State annuities 
that are paid specifically to blind veterans from the tests 
that are used to determine eligibility and benefits under SSI.
    Some AmeriCorps volunteers currently have benefits under 
this program excluded from SSI eligibility rules, while others 
do not. The Chairman's proposal would end this disparity by 
exempting payments made to all AmeriCorps volunteers when 
determining eligibility and benefits. This recommendation comes 
from the Social Security Administration and from the 
Corporation for National and Community Service.
    And last, the bill includes legislation that Mr. Van Hollen 
and I introduced to clarify the application of the 5-year 
requirement to the sale of a principal residence by a Peace 
Corps volunteer. The pending legislation is an important piece 
of work that will improve the lives of members of the armed 
forces and their families. It will also benefit those who 
volunteer to serve in the United States.
    And I am pleased to join my colleague, Congressman Neal 
from Massachusetts, in convening this hearing to discuss these 
important bipartisan proposals on behalf of the Committee. And 
I look forward to working with my colleagues on both sides to 
ensure that military personnel and other volunteers are treated 
equitably in our Tax Code and our Federal benefits. Thank you.
    Chairman NEAL. Thank you, Mr. Chairman.
    Now I would like to recognize our friend Mr. English, the 
Ranking Member of the Select Revenue Measures Subcommittee, for 
his opening statement. Mr. English.
    Mr. ENGLISH. I thank you, Mr. Chairman, for calling this 
hearing today. I think it is fair to say that we cannot express 
enough the tremendous debt of gratitude that we owe to the 
brave men and women who defend our freedoms on a daily basis.
    I have been privileged to have had the opportunity to 
support both our active duty military and the veterans who no 
longer wear the uniform. I am very grateful in this job to have 
been able to support legislation expanding quality of life 
improvements and pay increases for soldiers, as well as 
expansions of the VA medical care for veterans.
    And while many of these provisions are clearly not in the 
jurisdiction of this Committee, it is clear that the Tax Code 
does have an important role to play in addressing the needs of 
active duty and retired servicemembers. Today's hearing I think 
is a timely attempt to explore some of the ways the tax system 
is helping, and in some cases where it is not, and perhaps some 
opportunities for us to improve tax policy in this area.
    I am looking forward to the testimony, and also to working 
with you, Mr. Chairman and others, to identify substantial 
solutions to real-life problems facing our military.
    One of the problems I hope we will have a chance to examine 
is the shortage of on-base housing. This shortage forces the 
military to offer a housing allowance to soldiers who must find 
adequate housing off base. It is not clear to me that there is 
meaningful difference between these housing allowances and 
Section 8 vouchers for low-income families, which are also 
offered by the Federal Government.
    Yet strangely, under current law, the Tax Code perversely 
discriminates against military personnel attempting to find 
off-base housing. Specifically, under current law, Section 8 
vouchers do not count as income for purposes of determining 
whether an individual meets the income limits for living in a 
rent-subsidized low-income housing tax credit facility.
    Yet, the law says that the recipients of the military 
housing allowance must include the value of the allowance in 
determining income for the low-income housing tax credit. This 
counterintuitive rule is unfair and discriminates against those 
who choose to serve their country. There is no reason to treat 
recipients of Section 8 vouchers more favorably than members of 
our military, Mr. Chairman.
    I am grateful for those, including Mr. Moran of Kansas, who 
have gotten involved in this issue. And I hope that we will be 
able to work together in the coming days and weeks to address 
this serious problem. I can think of no better place to do so 
than in the context of this bill.
    Again, I thank you, and I thank the Committee, for moving 
forward in this area. And I yield back the balance of my time.
    Chairman NEAL. Thank you, Mr. English.
    And now let me recognize Mr. Weller, the Ranking Member of 
the Income Security and Family Support Subcommittee, for his 
opening statement. Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman. I appreciate the 
opportunity to participate in this very important hearing. I 
also want to welcome my colleagues who are not Members of this 
Committee who are joining us today, all three friends, and 
welcome them for testifying before our two Subcommittees this 
morning.
    This is an important hearing, Mr. Chairman, in which we 
will review the tax and benefit assistance provided today to 
support active and retired military families, amongst others. 
We should always be looking for ways to ensure that families 
who make these sacrifices receive appropriate and timely 
support. That will provide more help to current veterans, as 
well as active duty families.
    But it will also encourage more young people to make these 
sort of sacrifices for our country in the future. We must 
always honor those who sacrifice and defend our freedoms. Those 
are our military men and women, as well as our veterans.
    So I thank you for calling this hearing. I look forward to 
our continued bipartisan work on these issues in the weeks 
ahead.
    At this time I would like to yield to my colleague and 
friend, Representative Tom Reynolds, who has authored numerous 
bills designed to improve the assistance provided to blind 
veterans in New York and other States. This assistance flows to 
the SSI program that operates under the jurisdiction of the 
Income Security and Family Support Subcommittee. The proposal 
before us includes a modified version of Mr. Reynolds' 
proposal. Mr. Reynolds.
    Mr. REYNOLDS. I thank my friend for yielding me this time. 
And I thank both Chairman Neal and Chairman McDermott, as well 
as Ranking Members English and Weller, for holding this 
important hearing.
    Mr. Chairman, we come together this morning not as 
Democrats or Republicans, but as Americans. We are united in 
our respect for those who wear the uniform of the United States 
armed forces, and we are united in our desire to ensure that 
Federal programs within the Committee's jurisdiction, from Tax 
Code to the SSI program, work effectively for members of the 
military, veterans, and their families.
    I would like to highlight two specific provisions in the 
Committee's draft bill that have been of particular interest to 
me during my time with Congress. The first provision, section 
202, is modeled on legislation, the Blind Veterans Fairness 
Act, that I first introduced in the year 2000.
    My legislation would correct a problem in the Federal SSI 
rules that affect blind veterans in four States, New York, New 
Jersey, Pennsylvania, and Massachusetts, that provide blind 
veterans modest annuities in recognition for substantial 
sacrifices they have made in serving our country. We will hear 
more about one of those State annuity programs during our third 
panel when I introduce Michelle LaRock of New York's Division 
of Veterans' Affairs.
    Regrettably, under current Federal law, these State 
annuities actually reduce SSI payments for which blind veterans 
could otherwise be eligible. I do not need to remind my 
colleagues who serve on the Income Security Subcommittee that 
SSI beneficiaries are among the poorest of the poor in our 
country. The absolute last group of people the Federal 
Government should be barring from the program are veterans who 
gave their sight so the rest of us might be free.
    As in years past, the bill I have introduced in the 110th 
Congress, H.R. 649, has enjoyed bipartisan support among my 
Committee colleagues, including Chairman Neal, Mr. McNulty, and 
Mr. Porter. I would also like to thank Chairman Rangel for his 
cosponsorship of prior versions of this bill, and I look 
forward to working closely with him to see that this proposed 
legislation finally is enacted into law. I would ask unanimous 
consent that a letter from the Blinded Veterans Association 
endorsing H.R. 649 be entered into the record.
    Let me turn now to a separate provision in section 104 of 
the draft bill, which would permanently allow penalty-free 
withdrawals from IRA 401(k)s and other retirement funds for 
Reservists and National Guardsmen called to active duty. As we 
know, when Guardsmen or Reservists are called up, they often 
face significant reductions in pay compared to their civilian 
salaries, putting an economic strain on their families.
    To lessen this economic hardship, many of them choose to 
draw down on their retirement funds. Unfortunately, under prior 
law they face a 10 percent early withdrawal tax when they do 
so, and they face restrictions on making repayments to their 
retirement funds upon returning from active duty. Last year's 
Pension Protection Act provided relief from the 10 percent 
penalty tax and permitted unlimited repayments within 2 years 
after leaving active duty, but only for Guardsmen or Reservists 
called to active duty before December 1, 2007.
    To ensure this important relief remains available on a 
permanent basis going forward, I introduced H.R. 867, the 
Guardsmen and Reservist Tax Fairness Act, on February 7th of 
this year. This legislation has also attracted a bipartisan 
group of cosponsors, as well as endorsement from several 
leading VSOs. And I ask unanimous consent to make those 
endorsement letters part of the record as well.
    In closing, Mr. Chairman, I understand that we will be 
receiving testimony this morning from one of our colleagues, 
Mr. Lampson, about a bill he introduced on September 19th, just 
a few weeks ago, which is essentially identical to H.R. 867. I 
am delighted to see that my idea is gaining additional traction 
both by Democrats and Republicans, and I welcome support from 
any Member who is willing to help get this done. For me, this 
issue isn't about who can claim the most credit for eliminating 
the early withdrawal tax. It is about doing what is right for 
Guardsmen and Reservists.
    Mr. Chairman, I hope today's hearing will be a springboard 
for bipartisan action on these two important provisions that 
will find a way to make these changes without taxing ourselves 
to death somewhere else to pay for them. I thank the gentleman 
from Illinois for his courtesy in yielding me the time, and I 
yield back.
    Mr. WELLER. Claiming my time, and I yield back. Thank you, 
Mr. Chairman.
    Chairman NEAL. Thank you.
    I thank the gentleman from New York, and without objection, 
the letters he referred to will be part of the record.
    Mr. REYNOLDS. I thank the Chairman.
    Chairman NEAL. Without objection, any other Member wishing 
to submit an opening statement for the record may do so. And 
without objection, all written statements by witnesses will be 
made part of the record in full.
    Ms. Davis, Mr. Lampson, Mr. Jones, welcome to the 
Committee. Ms. Davis, would you please begin.

STATEMENT OF THE HONORABLE SUSAN A. DAVIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. DAVIS. Chairman Neal, Chairman McDermott, Ranking 
Member English, and Ranking Member Weller, thank you very much 
for convening today's joint hearing on the Tax Code's 
discriminatory treatment of servicemembers. I certainly 
appreciate having this opportunity to discuss how incorporating 
the language from the McDermott-Davis bill, H.R. 337, into the 
Heroes Earnings Assistance and Relief Act, the HEART Act, will 
help remedy one area of inequality.
    I would also like to thank the Members of the Committee for 
their effort to include provisions supporting Qualified 
Veterans Mortgage Bonds, or QVMB bonds, to promote 
homeownership for former servicemembers. Those loans have 
helped thousands of veterans in California and other eligible 
States purchase homes.
    Correcting the flaw in current law that prevents veterans 
who signed up for military service after 1977 would be an 
enormous step forward. Those returning from Iraq and 
Afghanistan would have greater opportunities to purchase homes, 
especially in California's high-cost real estate market. Again, 
I want to thank you for finally addressing the inequities in 
the QVMB program and for setting reasonable bond limits for the 
States that participate in this valuable program.
    Today's hearing illustrates an important point, and that is 
that we have a responsibility to care for those who have chosen 
to serve their country. Just as these brave men and women are 
working to protect our Nation, we must likewise protect them 
and their loved ones through the laws and the policies that we 
enact.
    I want to turn to SSI eligibility and H.R. 337. The current 
Supplemental Security Income, SSI, regulations are causing some 
military families a great deal of frustration, and in some 
cases preventing them from obtaining benefits. As you know, SSI 
is a means tested income assistance program that also 
facilitates access to valuable services such as Medicaid. 
Without SSI, some special needs families would not be able to 
cover their medical expenses.
    However, members of the armed forces face a unique risk of 
losing SSI eligibility. Under the program's rules, wages 
receive preferential treatment, the 50 percent disregard, as 
earned income, resulting in a lower countable income and, 
therefore, a higher SSI benefit. This process of income 
determination is generally straightforward, as Chairman 
McDermott pointed out, for the civilian population.
    But the intricate military pay and allowance system 
complicates the income determination process. Military members 
must contend with different treatment for items considered 
earned income or unearned income. Under current rules, only 
basic pay and continental United States cost of living 
allowance, the CONUS COLA, are considered earned income. 
Unfortunately, there are more than 30 types of military pay 
that are treated as unearned income and result in a higher 
countable income. It is a bit counterintuitive as we look at 
this. But that is really what is happening to these military 
families.
    The language from the Military Families Financial Security 
Act, H.R. 337, changes how the SSA calculates income for SSI 
eligibility by treating most military compensation as earned 
income. This very simple change will help families remain 
eligible for SSI benefits and, overall, simplify the 
Administration of this program.
    In addition, the language in H.R. 337 would codify current 
treatment of Basic Allowance for Housing, the BAH, to the rules 
for in-kind support and maintenance. Treating BAH this way 
would be more favorable for income determination purposes.
    I wanted to just mention a few comments that I have had 
from military families because I have heard from many of them 
who are struggling with the current SSI rules. And I think a 
few of their comments are telling.
    Lori Brown from northern San Diego has three children. Her 
husband, a 13-year Marine, is active duty. Her two boys receive 
SSI benefits. Dakota, 13, has Asperger's syndrome, and Hunter, 
age 7, cerebral palsy and epilepsy. And she wrote the 
following:
    ``We have had many ups and downs with SSI over the years. 
The way the military leave and earnings statement looks, 
everything is broken down and itemized for accounting purposes. 
But civilian pay stubs are looked at as earned income. This 
practice puts us at a great disadvantage. All the military 
families are looking for is equal rules for all, civilian and 
military, no better, no worse.''
    In closing, there is no doubt that the men and women who 
serve in our armed forces are everyday heroes. However, their 
service is even more inspiring when we realize many of these 
men and women are also trying to raise children and take care 
of their families.
    As Chair of the House Armed Services Subcommittee on 
Military Personnel and a former military spouse, the subject of 
military families has always been dear and near to my heart. 
The provisions from H.R. 337 and those dealing with veterans 
mortgage bonds are fair, overdue, and demonstrate our Nation's 
appreciation for our military families and veterans. These 
changes will give servicemembers a bit more peace of mind from 
knowing that payment for their duties will not be jeopardizing 
their families' eligibility for SSI benefits and related 
services.
    Thank you.
    [The prepared statement of Ms. Davis follows:]

          Prepared Statement of The Honorable Susan A. Davis,
       a Representative in Congress from the State of California

    Chairman McDermott, Chairman Neal and Distinguished Members of the 
Subcommittees,
    Thank you for convening today's joint hearing on the Tax Code's 
discriminatory treatment of servicemembers.
    I appreciate having this opportunity to discuss how incorporating 
the language from the McDermott-Davis bill, H.R. 337, into the Heroes 
Earnings Assistance and Relief Tax (HEART) Act will help remedy one 
area of inequality.
    Today's hearing also illustrates an important point, that is, we 
have a responsibility to care for those who have chosen to serve their 
country--just as these brave men and women are working to protect our 
Nation, we must likewise protect them and their loved ones through the 
laws and policies we enact.
SSI Eligibility and H.R. 337
    Current Supplemental Security Income (SSI) regulations are causing 
some military families a great deal of frustration and--in some cases--
preventing them from obtaining benefits.
    As you know, SSI is a means-tested income assistance program that 
also facilitates access to valuable services such as Medicaid.
    Without SSI, some special-needs families would not be able to cover 
their medical expenses. However, members of the armed forces face a 
unique risk of losing SSI eligibility.
    Under the program's rules, wages receive preferential treatment 
(50% disregard) as ``earned income'' resulting in a lower countable 
income and, therefore, a higher SSI benefit. This process of income 
determination is a generally straightforward one for the civilian 
population.
    The intricate military pay and allowance system complicates the 
income determination process. Military members must contend with 
different treatment for items considered ``earned income'' or 
``unearned income.'' Under current rules, only basic pay and 
Continental United States Cost of Living Allowance (CONUS COLA) are 
considered earned income. Unfortunately, there are more than 30 types 
of military pay that are treated as ``unearned income'' and result in a 
higher countable income.
    The language from the Military Families Financial Security Act, 
H.R. 337, changes how the SSA calculates income for SSI eligibility by 
treating most military compensation as earned income. This simple 
change will keep families eligible for SSI benefits and simplify the 
administration of this program.
    In addition, the language in H.R. 337 would codify current 
treatment of Basic Allowance for Housing (BAH) to the rules for in-kind 
support and maintenance. Treating BAH this way would be more favorable 
for income determination purposes.
Comments from Military Families
    Chairman McDermott and Chairman Neal, I have heard from numerous 
families who are struggling with the current SSI rules and want to 
share a few of their comments with you.
    Lori Brown from northern San Diego has three children and her 
husband, a 13-year Marine, is active duty. Her two boys receive SSI 
benefits. Dakota, 13, has Asperger's Syndrome and Hunter, 7, cerebral 
palsy and epilepsy.
    She wrote the following:

          ``We have had many ups and downs with SSI over the years. The 
        way the military LES (Leave and Earnings Statement) looks 
        everything is broken down and itemized for accounting purposes, 
        but civilian's pay stubs are looked at as all ``earned'' 
        income. This practice puts us at a great disadvantage. All the 
        military families are looking for is equal rules for all 
        civilian and military, no better no worse.''

    Anne Hoag from Watertown, NY has a 4\1/2\-year-old son, Liam, who 
did not qualify for SSI benefits because of the family's income. She 
shared the following about the current income determination process.

          ``This system is totally unfair and unjust for my son. If we 
        made the same amount of money and were civilians, he would 
        qualify for SSI.
          Being a military family is hard. Being a family with a 
        disabled member is hard. Being both is even harder, and these 
        families, these kids are suffering due to temporary 
        circumstances. SSI money would make a huge difference in the 
        life of my child.''

In Closing
    There is no doubt that the men and women who serve in our armed 
forces are everyday heroes. However, their service is even more 
inspiring when one realizes that many of these men and women are also 
trying to raise children and take care of their families.
    As Chair of the House Armed Services Subcommittee on Military 
Personnel and a former military spouse, the subject of military 
families has long been dear and near to my heart.
    Lee Iacocca once said, ``The only rock I know that stays steady, 
the only institution I know that works, is the family.'' He could have 
been talking about military families.
    The provisions from H.R. 337 are fair, overdue and demonstrate our 
Nation's appreciation for our military families. These changes will 
give servicemembers peace of mind from knowing that their duties will 
not jeopardize their families' eligibility for SSI benefits and related 
services.

                                 

    Chairman NEAL. The gentleman from Texas, Mr. Lampson, is 
recognized for testimony.

 STATEMENT OF THE HONORABLE NICK LAMPSON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. LAMPSON. Thank you, Chairman Neal, Chairman McDermott, 
Ranking Members English and Weller, distinguished Members of 
the Committee. It is an honor to be able to come and offer 
testimony this morning, and I certainly appreciate you calling 
this important hearing.
    Two weeks ago I announced a tax package that I developed to 
benefit all of our country's middle class, the America's Middle 
Class Tax Relief Plan. And included in that plan was H.R. 3594, 
America's Heroes Tax Relief Act, a bill that permits soldiers 
called to active military duty to deduct from the individual 
retirement accounts, their 401(k) plans or 403(b) tax-sheltered 
annuities, without having to pay the 10 percent early deduction 
tax the IRS levies on withdrawals taken before 59\1/2\.
    The Heroes Earnings Assistance and Relief Tax Act, HEART, 
that we are discussing today includes my legislation and many 
other provisions that help our soldiers and their families. And 
I am proud to support this bill that takes into consideration 
the financial burdens placed on our men and women in uniform 
serving bravely throughout the world, and works to provide for 
their financial security by cutting taxes and ensuring the 
receipt of important benefits that our military families depend 
on.
    Southeast Texas has the largest population of veterans in 
the Nation. Their service is something that we do not take for 
granted. National Guardsmen and Reservists throughout the world 
serve the United States honorably and bravely, often while 
enduring personal financial hardship. This legislation is just 
a small way to show our gratitude for their service and their 
sacrifice while easing the financial strain that can be put on 
them and their families.
    For military Reservists and National Guard members who are 
deployed and sent away from their usual job, the strain can be 
compounded. Since the war in Iraq began, statistics have shown 
that more than a third of these soldiers experience a cut in 
pay when they are called to active duty.
    Perhaps the hardest hit of this group are small business 
owners and self-employed workers, who account for about 6 
percent of the Reservists. Many of these individuals lose 
customers. They fall behind on their bills or are in some 
instances forced into bankruptcy. This is simply unacceptable, 
and the Heroes Earnings Assistance and Relief Tax Act will 
help.
    Veterans in my district are grateful for this legislation. 
Those who served in previous conflicts sympathize with the 
difficulties that our troops face when they return home, and 
are always thankful when we can make their time serving in 
active duty easier for them and for their families.
    Temporary relief from this tax was enacted through H.R. 4 
in the 109th Congress, which became public law in August 2006. 
But it didn't go far enough. Through the Heroes Earnings 
Assistance and Relief Tax Act, penalty-free withdrawals will 
become permanent, which will enable our heroes to count on a 
relief of financial burden on their families.
    This provision will enable military families in Texas and 
elsewhere to permanently make withdrawals from their retirement 
accounts to ensure their financial security while loved ones 
are serving our Nation. More Reserve soldiers than ever before 
hold white-collar jobs. And for many of these individuals, time 
away from home can harm relationships with customers and 
clients that took years to cultivate.
    Often, soldiers are called up to active duty and need extra 
funds to ensure their family is supported when they are sent 
overseas to protect our Nation. Our soldiers risk their lives 
defending our freedom and ensuring our Nation's security. They 
should not be penalized by the IRS while doing it.
    Again, I want to thank you for initiating this hearing on 
this important legislation that will help the families of our 
brave National Guardsmen and Reservists in combat continue to 
live their everyday lives with as little added stress as 
possible while their loved ones are overseas. I thank you, Mr. 
Chairman, and yield back.
    [The prepared statement of Mr. Lampson follows:]

           Prepared Statement of The Honorable Nick Lampson,
          a Representative in Congress from the State of Texas

    I am pleased to offer this testimony, and I thank the Chairmen and 
Members of the Committee for calling this important hearing.
    Two weeks ago I announced a tax cut package I developed to benefit 
all of our country's middle-class, America's Middle-Class Tax Relief 
Plan. Included in my plan was, H.R. 3594, America's Heroes Tax Relief 
Act, a bill that permits soldiers called to active military duty to 
deduct from their individual retirement accounts, their 401(k) plans 
and 403(b) tax-sheltered annuities, without having to pay the 10 
percent early-deduction tax the IRS levies on withdrawals taken before 
age 59 and a half.
    The ``Heroes Earnings Assistance and Relief Tax Act'' that we are 
discussing today includes my legislation and many other provisions that 
help our soldiers and their families. I am proud to support this bill 
that takes into consideration the financial burdens placed on our men 
and women in uniform serving bravely throughout the world, and works to 
provide for their financial security by cutting taxes and ensuring the 
receipt of important benefits that our military families depend upon.
    Southeast Texas has the largest population of veterans in the 
Nation. Their service is something we do not take for granted. National 
Guardsmen and Reservists throughout the world serve the United States 
honorably and bravely, often while enduring personal financial 
hardship. This legislation is just a small way to show our gratitude 
for their service and sacrifice while easing the financial strain that 
can be put on them and their families.
    For military Reservists and National Guard members who are deployed 
and sent away from their usual job the strain can be compounded. Since 
the war in Iraq began, statistics have shown that more than a third of 
these soldiers experience a cut in pay when they're called to active 
duty.
    Perhaps the hardest hit of this group are small business owners and 
self-employed workers, who account for about 6 percent of reservists. 
Many of these individuals lose customers, fall behind on their bills or 
are forced to declare bankruptcy. This is simply unacceptable and the 
``Heroes Earnings Assistance and Relief Tax Act'' will help.
    Veterans in my district are grateful for this legislation. Those 
who served in previous conflicts sympathize with the difficulties our 
troops face when they return home and are always thankful when we can 
make their time serving in active duty easier for them and their 
families.
    Temporary relief from this tax was enacted through H.R. 4 in the 
109th Congress, which became public law in August 2006, but it didn't 
go far enough. Through the ``Heroes Earnings Assistance and Relief Tax 
Act,'' penalty-free withdrawals will become permanent which will enable 
our heroes to count on a relief of financial burden on their families.
    This provision will enable military families in Texas and elsewhere 
to permanently make withdrawals from their retirement accounts to 
ensure their financial security while loved ones are serving our 
Nation.
    More reserve soldiers than ever before hold white-collar jobs. For 
many of these individuals, time away from home can harm relationships 
with customers and clients that took years to cultivate.
    Often, soldiers called up to active duty need extra funds to ensure 
their family is supported when they are sent overseas to protect our 
Nation. Our soldiers risk their lives defending our freedom and 
ensuring our Nation's security. They should not be penalized by the IRS 
while doing it.
    Again, I would like to thank you for initiating this hearing on 
this important legislation that will help the families of our brave 
National Guardsmen and Reservists in combat continue to live their 
everyday lives with as little added stress as possible while their 
loved ones are overseas.

                                 

    Chairman NEAL. Thank you, Mr. Lampson.
    Now I would like to recognize our friend Mr. Jones from 
North Carolina.

STATEMENT OF THE HONORABLE WALTER B. JONES, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. JONES. Chairman Neal and Chairman McDermott, and my 
friends Ranking Members English and Weller, and the Members of 
this Committee, thank you for this opportunity.
    Mr. Chairman, our men and women in uniform serve this 
Nation with great honor and distinction and may give their 
lives for this country. It is for this reason that I introduced 
this legislation over 2 years ago. H.R. 418 permits military 
families who receive the death gratuity to invest the full 
amount into certain tax-favored accounts.
    As you may know, a death gratuity is a $100,000 payment 
paid to survivors of servicemembers whose death resulted from 
combat-related circumstances. Current tax laws limit the 
amounts that recipients of the death gratuity can place in tax-
preferred accounts such as a Roth IRA or a Coverdell Education 
Savings Account. This legislation would change that to allow 
recipients to contribute up to the full amount of the gratuity 
payment to any one of these two accounts.
    As the families of our fallen heroes try to put their lives 
back together, they need help. They should not have to worry 
about saving the death gratuity to pay for retirement, college, 
or other expenses, and then have the government come in and tax 
the interest on that savings. This bill will help ensure that 
does not happen.
    The need for this legislation was brought to my attention 
by Captain Michael Ceres, a constituent stationed at Marine 
Corps Air Station New River. Captain Ceres, who had just 
returned from serving in Iraq, contacted my office and 
suggested that Congress institute this change to ease the 
burden on grieving military families.
    The Joint Committee on Taxation has scored this legislation 
at no cost, meaning that the actual cost of this proposal is 
less than $500,000 over 9 years. We owe it to our fallen 
military heroes to expand the options of families who receive 
the death gratuity, families who have paid the ultimate cost 
with the loss of their loved one.
    H.R. 418 has also received the endorsement of the Military 
Coalition, a group of prominent national military and veterans 
organizations that represent more than 5.5 million members, 
plus families.
    I thank you, Mr. Chairman, for this hearing. I am grateful 
that this Committee is putting together this comprehensive 
package to help our families and our military. And so with 
that, Mr. Chairman, thank you again for this opportunity, and I 
yield back the balance of my time.
    [The prepared statement of Mr. Jones follows:]

          Prepared Statement of The Honorable Walter B. Jones,
     a Representative in Congress from the State of North Carolina

    Mr. Chairman, Ranking Member, our men and women in uniform serve 
this Nation with great honor and distinction. Many give their lives for 
this country. It is for this reason that I introduced this legislation 
over 2 years ago. H.R. 418 permits military families who receive the 
death gratuity to invest the full amount into certain tax-favored 
accounts.
    As you may know, a death gratuity is a $100,000 payment paid to 
survivors of servicemembers whose death resulted from combat-related 
circumstances. Current tax law limits the amount that recipients of the 
death gratuity can place in tax-preferred accounts such as a Roth IRA 
or Coverdell Education Savings Account. This legislation would change 
that to allow recipients to contribute up to the full amount of the 
gratuity payment to any one of those accounts.
    As the families of our fallen heroes try to put their lives back 
together, they need all the help they can get. They should not have to 
worry about saving the death gratuity to pay for retirement, college, 
or other expenses--and then have the government come in and tax the 
interest on that savings. This bill would help ensure that does not 
happen.
    The need for this legislation was brought to my attention by 
Captain Michael Ceres, a constituent stationed at Marine Corps Air 
Station New River. Captain Ceres, who had just returned from serving in 
Iraq, contacted my office and suggested that Congress institute this 
change to ease the burden on grieving military families.
    The Joint Committee on Taxation has scored this legislation at no 
cost, meaning that the actual cost of the proposal is less than 
$500,000 over 9 years.
    We owe it to our fallen military heroes to expand the options of 
families who receive the death gratuity, families who have paid the 
ultimate cost with the loss of their loved one.
    H.R. 418 has also received the endorsement of The Military 
Coalition, a group of prominent national military and veterans 
organizations that represents more than 5.5 million members plus their 
families.
    Today, I call upon my colleagues to support H.R. 418 to expand the 
options of military families whose loved ones have given their lives in 
the name of freedom and in defense of our Nation.

                                 

    Chairman NEAL. Thank you very much, Mr. Jones.
    I know that this question is going to sound very simple, 
but I think it is worthy of explanation and certainly would be 
helpful to the discussion as a whole. For any of the three 
panelists, you are cosponsoring or suggesting a manner in which 
it would be easier for people to access penalty-free retirement 
account withdrawals.
    Can you explain succinctly why people need, in the 
military, to tap into these retirement accounts earlier than 
anticipated? Any one of the three like to take a----
    Mr. LAMPSON. I would like to at least make one comment on 
it. There are many areas where we are desperately in need of 
people with good background to be able to do it, and oftentimes 
those particular jobs to which they may go are not highly paid 
jobs.
    Teachers, for example, is an area where if a person is able 
to, when they leave the military, go into a teaching field and 
offset some of their costs for living with access to already-
set-aside money without having to pay the penalty on it, it 
would be a significant boon to our communities. And I am sure 
that that can be doubled many times over.
    Chairman NEAL. Thank you. Sounds so simple, but it is so 
critical.
    Mr. LAMPSON. Indeed.
    Chairman NEAL. Mr. English.
    Mr. ENGLISH. Mr. Chairman, I would just like to thank these 
panelists for their contribution and for their very strong 
commitment to the veterans. And I have no further questions.
    Chairman NEAL. Thank you.
    Mr. McDermott.
    Mr. MCDERMOTT. I would like to hear from each of you the 
case that came to your office that made you drop in this 
legislation, because I think sometimes people don't understand 
where we get the ideas that we bring to Congress.
    Susan, can you tell us what happened to you?
    Ms. DAVIS. I have had an opportunity, actually, to meet 
with a number of families who have come and spoken to me. Lori 
Brown, who I mentioned in this particular story, I met with Ms. 
Brown and her son Hunter to talk about this issue.
    And I think what is so difficult about it, the 
predictability for these families is just not there because 
their income is changing from one deployment to the next. And 
that is what is really difficult because sometimes if they are 
in combat, it may be exempted. But if they are not in combat, 
it is not.
    I think the system itself just confuses families. And I had 
this wonderful family in front of me sharing how they just 
don't know how they are going to cover these medical expenses 
from one year to the next because of the way their income is 
counted.
    As I said earlier and I think you mentioned, Mr. Chairman, 
it is counterintuitive. You would think that they would be 
getting more. But, in fact, because it is not counted as earned 
income, it then ends up being at a higher level, which sends 
the message that they are making a lot more money than they are 
actually making. And that is where the rub is.
    Mr. MCDERMOTT. Nick.
    Mr. LAMPSON. Mr. Chairman, I think there are probably two--
--
    Mr. MCDERMOTT. Congressman Lampson.
    Mr. LAMPSON. Call me anything. Just don't call me late for 
supper.
    I think for the first time that I had such an impact made 
to me about the need to address issues like this was when a 
veteran's family came to us because they were in the process of 
losing their home, which they actually lost. I was astounded.
    I think more recently, a gentleman who is working for me in 
my office now, when he returned from Iraq, expressed concerns 
himself about needing financial assistance to be able to make 
ends meet, to make the transition, to get back into the life 
here. So John Bursler is a gentleman who served valiantly in 
combat, and came back and is now working in my office.
    And I think that the number of cases, Chairman McDermott, 
probably can go on as long as your arm, unfortunately. And 
there are some that are pretty dramatic. We have a significant 
number of people right now who I met with who have just 
returned. The 149th Attack Group came back just within the last 
couple of weeks. Some of those people are already coming and 
talking to us about some of the needs that legislation like the 
HEART Act will be able to assist. And we appreciate that.
    Mr. MCDERMOTT. Mr. Jones.
    Mr. JONES. Mr. Chairman, thank you. Captain Michael Ceres 
called me 2 years ago and we talked by telephone. And he said, 
Congressman, he said, I have been to Iraq one time. I am sure 
that I will be going back soon. He said, I want to make it as 
easy for my wife. He said, we have two children. The oldest is 
six. And he said, we have talked about my death and what I 
would like to happen for her and my children.
    And I really get kind of a chill telling you this 
conversation because over the telephone, he was such a 
compassionate man. And he just wanted to make sure that his 
wife would have decisions that would be forthcoming; in some 
ways, maybe he could take off some of the pressure.
    And that is how he brought this idea to me about the 
$100,000 death gratuity. Give her, or any family, an option to 
put the full amount in and not have to worry about 5,000 here, 
5,000 there. And I just felt like it made a great deal of 
sense. And if a family member is going to be sent to war and 
maybe not come back, then they could at least say to that 
spouse, you now have a choice that you can take the full 
amount, if you choose to do so, and put it into a 401 type 
plan.
    Mr. MCDERMOTT. Thank you. Thank you all.
    Chairman NEAL. Thank you, Mr. Chairman.
    The Chair would now like to recognize Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman. And I want to thank my 
colleagues for being before us today. Clearly, all have 
proposals which have, I believe, strong bipartisan support.
    I particularly want to commend my friend Mr. Jones for your 
initiative here in giving survivors the opportunity to save the 
full death benefit. As one who has worked on the issue of 
catch-up contributions, IRAs and 401(k)s to help working moms 
and empty nesters make up missed contributions, I believe your 
proposal clearly has bipartisan support and I would welcome the 
opportunity to work with you.
    Mr. JONES. Thank you.
    Mr. WELLER. As I note, as your testimony points out, this 
bill has already been scored. And the scoring says that the 
actual cost proposal is less than $500,000 over 9 years. So it 
comes at a little cost, but it can really make a difference for 
families.
    So I want to commend you for your initiative, and I would 
very much like to work with you as a cosponsor of your bill, if 
I could join with you.
    Mr. JONES. Thank you.
    Mr. WELLER. Thank you, Mr. Chairman. I yield back.
    Chairman NEAL. Thank you. Are there any other questions 
from our panelists, or would it be okay----
    Mr. DOGGETT. Mr. Chairman?
    Chairman NEAL. The Chair would recognize Mr. Doggett.
    Mr. DOGGETT. I'd like to thank each of you for the role 
you've played. And I believe that our objective, as Congressman 
Jones said, is to develop a comprehensive package, to take all 
the ideas that have come forward and try to bring them together 
to do as much as we possibly can.
    I know you recall the effort that we made a few years ago 
just to get the limit on the death benefit up to $100,000 
because when this war began, it was much lower than that. And I 
think each of you have constructive proposals.
    I would like to ask Congresswoman Davis about another idea. 
The SSI benefits you mentioned are extremely important, but we 
have also been considering as a part of this comprehensive 
package the challenges that many of our returning military 
personnel face when they come back to try to find housing.
    And you have some legislation that you have introduced--I 
know Congressman Lampson has joined with it because 
particularly Texas and California have been affected--that 
currently the law does not allow more veterans who served our 
country since the Vietnam War to participate in programs like 
we have in Texas.
    In Texas, it is done through our Veterans Land Board, and 
it has been really important to open financing for our vets to 
allow them to be a home buyer. And yet under the way the law is 
written now, someone who served in the Persian Gulf War, in 
Bosnia, in Somalia, and now in the conflicts in Afghanistan and 
Iraq, would not be eligible for a program that a Vietnam vet or 
someone earlier than that would be eligible.
    Could you elaborate a little on your efforts, Congresswoman 
Davis or Congressman Lampson? I know you care about this issue 
also.
    Ms. DAVIS. Yes. Well, thank you, Mr. Doggett. Yes. What is 
so difficult is that if you are coming back from Iraq or 
Afghanistan today, you are not eligible for that program that 
other vets have been eligible for in California and across the 
country.
    By including the Qualified Veterans Mortgage Bonds in this 
provision today in this bill, it really does make a difference. 
Anyone serving after 1977 is therefore eligible. And these are 
the opportunities that provide them with the best loans 
possible.
    And when we talk to those returning men and women, it 
doesn't make any sense to them that they somehow would not be 
part of this. It is a quirk basically and some limits that were 
cast in prior legislation, and that is the correction that is 
being done today. And it really will make a difference by 
substantial amounts to these folks.
    Mr. DOGGETT. And Congressman Lampson, since your territory 
is not far from the area I represent in Texas, I am sure that 
like my area, it has an affordable housing problem, and that 
many of the folks who might settle there in the outskirts of 
Houston or in any of the area that you cover, that being able 
to get the financing, and now with some of the challenges 
especially within the mortgage industry, is really important to 
these returning vets.
    Mr. LAMPSON. Anyone who has ever looked into the face of 
anybody who lost a home, and then more importantly, a veteran--
when I was standing and talking with three different families 
on the return of a group of Iraq veterans, all three of them 
were having difficulties. Only one of them at the time lost a 
home.
    Many of our--what is it, one-third of our homeless people 
are veterans. Those are atrocious statistics for us to 
consider. And like I started out, if you look at the face of 
someone like that, how can we not stand up to do anything we 
can to be of help?
    This legislation we hope will. We want to make a 
difference. There are many, many, many people who are seeking 
the opportunity to be homeowners. If we can help them, then I 
think we are doing the job that we were sent here to 
Washington, D.C. to do.
    Mr. DOGGETT. And I know, going back to your service even 
before coming to Congress, you are familiar with the work of 
the Texas Veterans Land Board----
    Mr. LAMPSON. Certainly.
    Mr. DOGGETT [continuing]. And how valuable it is to our 
vets there in Texas. And if we can open up opportunities there 
to more returning vets, we can provide more opportunity to come 
back and be full participants and homeowners in Texas.
    Mr. LAMPSON. Certainly.
    Mr. DOGGETT. Thank you, and I yield back.
    Chairman NEAL. Mr. Thompson is recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman. I want to thank all 
of you for being here today and for your testimony, and for the 
great work that you are doing in this regard.
    Specifically, though, I would like to thank Ms. Davis for 
her work in her bill that she introduced regarding the 
Qualified Veterans Mortgage Bond program. I am proud to be a 
cosponsor of that bill, and had it not been for that program, I 
don't think I could have purchased my first house.
    So I know it was important for me, and I know it is 
important for a lot of other veterans. And we need to help 
those folks realize that American dream in all ways that we 
possibly can. So thank you.
    I yield back.
    Chairman NEAL. The Chair would recognize Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. And I too 
appreciate the hard work that is evidenced by our colleagues 
here, and I identify with the comments that both my previous 
colleagues have mentioned here from the dais.
    Mr. Chairman, I guess I would just add my voice in terms of 
making sure that the Qualified Veterans Mortgage Bond program--
we are in a State that has had a program here that has served, 
in Oregon, a third of a million veterans since World War II, 
being able to make some adjustments.
    We are in danger of running out of money in my State, and I 
look forward to working with my colleagues who are witnesses 
and with you, Mr. Chairman, to make sure that the adjustment--
it looks like we have some indication from the Committee staff 
and leadership that we might be able to make an adjustment for 
Oregon that would be necessary to keep that program going so 
that we don't shortchange our veterans who are returning from 
the field of battle of late.
    And I appreciate the work that all of you are doing, and 
look forward to making sure that that benefit extends back to 
my community as well.
    Chairman NEAL. Thank the gentleman.
    The gentlelady from Nevada, Ms. Berkley, is recognized.
    Ms. BERKLEY. Thank you, Mr. Chairman. I also want to thank 
and congratulate my colleagues for coming here and presenting 
their testimony regarding these pieces of legislation that are 
going to impact the lives of our veterans.
    I represent a community that has the fastest-growing 
veterans population in the United States. I have over 200,000 
veterans in my congressional district. And as a Member of the 
Ways and Means Committee and the Veterans' Affairs Committee, I 
keep in close contact with my veterans.
    Nellis Air Force Base is directly outside of my district. 
And right now we have 1,600 veterans who have returned home 
from this latest military action in Iraq and Afghanistan in our 
global war on terrorism. These pieces of legislation that are 
being proposed today are very important, and I fully support 
them.
    When I hear our colleagues and Members of the 
Administration talking about supporting our troops, I can't 
think of a better way of supporting our troops than showing our 
veterans that we recognize their sacrifices and we care enough 
about them to make them as whole as possible when they return, 
and in the chance that they don't return, to show our 
appreciation for the ultimate sacrifice by helping the families 
overcome this tragedy.
    So I thank you again for being here, and I appreciate your 
testimony.
    Chairman NEAL. Thank the gentlelady.
    Mr. Johnson, the gentleman from Texas, is recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate it.
    You know, in Texas, and you would know that, the Qualified 
Veterans Mortgage Bond program in Texas has been very popular 
with older veterans. IT is a program that was grandfathered 
into law in 1986 along with other private activity bond 
programs in four additional States.
    The program in Texas is limited to only veterans who served 
on active duty before 1977, and who apply for this housing 
finance assistance within 30 years after the last date of their 
military service. Frankly, there are not many veterans who fall 
into that category, but we have thousands of young Texans who 
are coming home from military service today who should be 
served by this program. Young veterans from Texas should be 
eligible for veteran mortgage bond financing for their homes, 
just as the young veterans in the States of Oregon, Alaska, and 
Wisconsin are now.
    Mr. Chairman, I would like to get information from the 
Joint Committee on Taxation about how many additional veterans 
will be eligible for this housing assistance if this provision 
is added to the bill. And I also would ask unanimous consent to 
have a statement submitted for the record from the Texas 
Veterans Land Board Chairman, Jerry Patterson.
    Chairman NEAL. Without objection, the gentleman's request 
will be entered into the record.
    Mr. JOHNSON. Thank you. Thank you for allowing me to come 
in.
    Chairman NEAL. Thank you, Mr. Johnson.
    The gentlelady from Pennsylvania, Ms. Schwartz, is 
recognized.
    Ms. SCHWARTZ. Thank you, Mr. Chairman. And I too want to 
congratulate my colleagues for their really important work in 
supporting our troops, our armed services, and particularly 
recognizing some of the issues that they have when they return 
home. So thank you for your good work, and I know you 
appreciate your interest being in this draft bill, and hope to 
keep it that way.
    I wanted to take my moment to not ask a question, but to 
mention something else that is in the draft legislation that is 
a proposal that I have introduced and support. And it comes 
from--I appreciate the suggestion we are to talk about where it 
comes from.
    And I have a constituent who came to me about an issue. He 
is actually a full-time civilian Federal employee at a defense 
logistics agency in my district. I want to call it--we always 
refer to it as the defense supply depot, you know.
    But he volunteered to go to Iraq to work, as he does here, 
on the same kind of issues of logistics and actually buying 
supplies. And so I didn't get a chance to see him in my 
district, but I did see him when I was in Baghdad. We met when 
I was in the Green Zone. He was in uniform, and his name is Tim 
McMinn.
    And his issue was the fact that while he is serving in a 
combat zone and in harm's way and doing work for the Department 
of Defense as a Federal civilian employee, he does not get the 
same tax advantages as someone who serves in the military, and 
had asked me about whether in fact we could fix that.
    He is overseas again in a combat zone in harm's way doing 
work asked by the Department of Defense, and his family is at 
home. And he would like the same tax advantages. So Mr. Wolf, 
who has introduced this legislation referred to as the Federal 
Employee Combat Zone Tax Parity Act--and actually, Mr. Jones, 
you are a cosponsor, as is Mr. English and Van Hollen on the 
Committee.
    And it has been included in the underlying bill, draft 
bill. And I'm pleased about that. And, also, I know I share 
with you an interest in seeing that our civilian soldiers, if 
you want to call them that, are treated in the same way from a 
tax point of view so that they actually can receive the same 
tax benefits while they are deployed overseas.
    So I am sure some of you would want to be supportive of 
that. But I mention it and want to say that I look forward to 
working with the Chairman on this particular piece of 
legislation and this content in the bill, and look forward to 
working on the larger bill as well, and hope we can move 
forward so that our newest veterans can receive some of the 
kind of fairness that they need from a tax structure.
    So thank you, Mr. Chairman.
    Chairman NEAL. We thank the gentlelady.
    I want to also thank our panelists for their testimony 
today. And I would now like to move to the second panel, and 
ask Mr. Rust to take his position.
    The Chair would now like to recognize Mr. Rust. Would you 
proceed with your testimony, sir.

    STATEMENT OF DAVID A. RUST, ACTING DEPUTY COMMISSIONER, 
   DISABILITY AND INCOME SECURITY PROGRAMS, SOCIAL SECURITY 
                         ADMINISTRATION

    Mr. RUST. Chairman Neal, Chairman McDermott, and Ranking 
Members Weller and English, I am pleased to be with you today. 
On behalf of Commissioner Astrue, thank you for inviting me to 
discuss the proposed changes in the SSI program.
    I am David Rust. I am the Executive Secretary of the 
Agency, and since early August, I have also been serving as the 
Acting Deputy Commissioner for Disability and Income Security 
Programs. My responsibilities include oversight and 
coordination of policy and operational issues for both the SSI 
program and the OASDI program. In this role, I have great 
interest in making these programs as effective as possible, and 
I am pleased that SSA views on the pending SSI-related 
proposals in the HEART bill have been requested today.
    Over the years, Congress has pursued incremental changes in 
the SSI law, finding ways in which equity can be improved and 
policy streamlined within the basic structure of the program. 
It is in that context that we can best evaluate the three SSI-
related provisions in the legislation, and I am pleased to say 
that we support two of these provisions, and that they have 
been previously proposed to the Congress by SSA.
    The first proposal would treat most military compensation 
as wages for SSI purposes and codify SSA's policy of treating 
certain housing allowances as non-cash or in-kind income. The 
proposal would also put in the statute the current SSI policy 
that excludes any additional pay received from service in a 
combat zone. We believe that this legislation is critically 
important.
    The provision would remove the most significant inequity in 
the consideration of household income. And it is especially 
needed by disabled children of our Nation's service men and 
women. It is this group that is most severely affected by the 
current policy.
    Under current SSI law, generally only basic pay is counted 
as earned income. All other allocations--housing, uniform, 
special duty pay, and so forth--are counted as unearned income. 
Because of the SSI provisions supporting beneficiary efforts to 
work, earnings from work are treated differently than other 
income in determining eligibility and benefit levels.
    When a child is disabled, we determine eligibility based on 
family income using the same distinction between earned and 
unearned income. The different treatment of different pay types 
has had the effect of disadvantaging many military personnel.
    The proposal contained in the HEART bill would result in 
treating most cash military compensation and civilian wages 
alike for SSI purposes, thus eliminating the present unfair 
treatment of military compensation other than basic pay.
    We also support a statutory requirement regarding the 
consideration of certain privatized military housing. This 
approach to the housing allowance is appropriate because in 
these situations, the full amount of the servicemember's 
allowance is deducted directly from his or her pay and then 
paid directly to the landlord of the privatized housing. By 
codifying this policy into statute, Congress affirms the 
importance of eliminating inequities in the SSI program.
    Mr. Chairman, I would note that I think that Representative 
Davis' earlier testimony clearly described the situation that 
many of these provisions were designed to address.
    Turning to the second proposal, we also support legislation 
that would exclude AmeriCorps program payments for the purposes 
of determining SSI eligibility and benefit amounts. In 1993, 
the creation of the Corporation for National Community Service 
brought together two formerly independent Federal agencies, the 
Commission for National Service and the Action Agency.
    This merger of previously separate agencies led to 
differences in how income for SSI purposes is considered. For 
volunteers in the AmeriCorps Vista program, Federal law 
excludes stipends paid to the volunteers from income for SSI 
purposes. However, current law does not exclude similar 
payments to other AmeriCorps volunteers.
    Thus, we have individuals performing similar volunteer work 
and participating in similar programs who are being treated 
differently. SSA supports the proposed legislation. Treating 
income similarly across the AmeriCorps volunteer programs would 
provide equity for our beneficiaries and also provide for 
administrative simplification.
    Like all Americans, we recognize the great debt owed to 
members of the armed services who have made sacrifices for all 
of us. The third proposal, to exclude State annuity benefits to 
blind veterans from income considered for SSI benefits, serves 
as a means to recognize that sacrifice. An exclusion of State 
annuity payments for veterans who by definition are blind and 
also of limited resources seems reasonable and appropriate.
    In conclusion, the AmeriCorps and Military Service Income 
proposals correct inequities that exist in the current SSI law, 
and the State Blind Pension exclusion could provide 
humanitarian assistance to those who have served our country.
    I thank the Subcommittees for holding this hearing and for 
considering these SSI provisions. SSA looks forward to 
continuing to work with Congress in our ongoing efforts to 
promote sound public policy and improve program administration.
    Thank you, and I will be glad to answer any questions you 
may have.
    [The prepared statement of Mr. Rust follows:]

    Prepared Statement of David A. Rust, Acting Deputy Commissioner,
Disability and Income Security Programs, Social Security Administration

    On behalf of Commissioner Astrue, thank you for inviting me to 
discuss proposed changes in the Supplemental Security Income (SSI) 
program. I am David Rust, and I serve as Executive Secretary of the 
Agency and, since early August, as the Acting Deputy Commissioner for 
Disability and Income Security Programs. My responsibilities include 
oversight and coordination of policy and operational issues for both 
the SSI and the Old Age, Survivors, and Disability Insurance (OASDI) 
programs. In this role I have an obligation to make these programs as 
effective as possible, and a great interest in proposals that would 
help achieve that end. So I am pleased to offer the Social Security 
Administration's (SSA's) views on several SSI-related proposals 
contained in the Chairman's draft bill.
Background
    Before turning to the specific proposals contained in this bill, I 
would like to take a minute to provide some helpful background 
information. SSA has been administering the SSI program for more than 
30 years--dealing with a program in which eligibility and the amount of 
needs-based benefits is dependent upon the fluctuating circumstances of 
millions of beneficiaries. Complex income rules, designed to more 
favorably consider earned wages than unearned payments, mean that SSA 
must evaluate the source of every dollar. Resource limits, likewise, 
mean that a beneficiary who is eligible for payments one month may not 
be the next.
    If it sounds complicated, that's because it is. Means-tested 
programs such as SSI have to balance the stewardship requirements of 
protecting taxpayers, while insuring fair treatment for beneficiaries, 
with the administrative need to design programs that are manageable. It 
is quite a challenge for SSA and the Congress, both of which have 
studied SSI simplification and equity issues for years.
    Over the years, Congress has pursued incremental changes to SSI 
law, finding ways in which equity can be improved and policy can be 
streamlined within the basic structure of the program. It is in this 
context that we can best evaluate the SSI-related provisions of this 
legislation, and I am pleased to say that we support two of the 
proposals without reservation, as they have in fact been previously 
transmitted to Congress by SSA in Administration bills.
Treatment of Most Military Compensation as Wages
    Turning to the first proposal, this provision would treat most 
military compensation as wages for SSI, and codify SSA's policy of 
treating certain housing allowances as ``in-kind'' income. We believe 
this legislation is very important.
    The provision would remove a significant inequity in the 
consideration of household income, and is especially needed in light of 
those who are most often affected by the current policy--the disabled 
children of our Nation's service men and women.
    Under current SSI law, generally only basic pay is counted as 
earned income. All other allowances--housing, uniform, special duty 
pay, and so on--are counted as unearned income. Because of SSI's 
provisions supporting beneficiary efforts to work, earned income is 
treated differently than unearned income in determining benefit 
eligibility and payment level.
    Generally, all unearned income above $20 is used in these 
calculations. But in determining eligibility and calculating benefits, 
we do not count the first $65 of earned income and one-half of income 
above the $65 amount. When a child is disabled, we determine 
eligibility based on family income, using the same distinction between 
earned and unearned income. Current law requires us to treat all 
payments except for basic pay as unearned income. (Combat pay is 
disregarded altogether.)
    This distinction between consideration of military basic pay and 
other pay types has had the effect of disadvantaging military personnel 
compared to civilians in similar situations.
    Let's look at the differences in the way income would be treated in 
two similarly situated families:
    The family of an active duty servicemember could be receiving basic 
pay of $1,459 per month, and a military housing allowance of $1,087--a 
total of $2,546. The housing allowance portion is counted as unearned 
income. Because of the less-favorable treatment of unearned income for 
SSI purposes, in calculating SSI eligibility for a disabled child, we 
would ``count'' $519.
    But a civilian with the same total income of $2,546 would receive 
all income through wages (earned income) and would pay rent via a 
portion of the wages. Thus we would count $141 of the civilian's wages 
in determining SSI eligibility for the disabled child. Assuming there 
is no other income to either family, the disabled child in the civilian 
family would receive $502 in SSI benefits, while the disabled child in 
the military family would only receive $124.
    The proposal contained in the HEART bill would result in treating 
most cash military compensation and civilian wages alike (for SSI 
purposes), thus eliminating this present unfair treatment of military 
compensation other than basic pay.
    We also support placing into statute the current SSA policy 
regarding how we consider certain privatized military housing. In the 
SSI program, certain privatized military housing is generally 
considered ``in-kind support and maintenance,'' and is treated 
differently than either earned or unearned income. Since March of 2003, 
we have capped the amount of SSI benefit reduction attributable to the 
housing allowance to one-third of the SSI Federal benefit rate. This 
approach to the housing allowances is appropriate because in these 
situations the full amount of the servicemember's allowance is deducted 
directly from his or her pay, and paid to the landlord of the 
privatized housing by military payroll. By codifying this policy into 
the statute, Congress affirms the importance of eliminating inequities 
in the SSI program.
Exclusion of AmeriCorps Payments for SSI and DI Purposes
    Turning to the second proposal, we also support legislation that 
would exclude the AmeriCorps State and National and AmeriCorps National 
Civilian Community Corps program payments for purposes of determining 
SSI eligibility and benefit amounts.
    Stipends for AmeriCorps VISTA volunteers are currently excluded 
from income for SSI purposes under the 1973 authorization for this 
program, the Domestic Volunteer Service Act. However, authorizing 
legislation for the newer AmeriCorps programs, does not exclude 
stipends for SSI purposes. These payments are counted as earnings in 
the SSI program, and room and board provided under the new programs is 
counted as in-kind support and maintenance. The earnings received based 
on these newer AmeriCorps programs are also taxable, and earn Social 
Security (OASDI) quarters of coverage. All three AmeriCorps programs 
have similar missions, and volunteers in these programs that receive a 
living allowance can receive a separate educational award upon 
completion of public service.
    Thus, we currently have individuals performing similar volunteer 
work and participating in similar programs who are being treated 
differently. SSA supports the proposed legislation. Expanding the 
earning exclusions to participants in the other two programs would 
provide equity for our beneficiaries, administrative simplification, 
and presumably enable AmeriCorps to enroll more participants with 
disabilities.
Exclusion of Certain Annuity Payments to Blind Veterans
    Like all Americans, we recognize the great debt owed to the men and 
women, who have sacrificed for us as members of the armed services, and 
the third proposal to exclude State annuity payments to blind veterans 
from income consideration for SSI benefits, could serve as a means to 
recognize that sacrifice. An exclusion of State annuity payments for 
veterans who, by definition, are blind and also of limited means, may 
be reasonable and appropriate.
Conclusion
    In conclusion, the AmeriCorp and Military Service Income proposals 
correct inequities that exist in current SSI and law, and the Blind 
Pension exclusion could provide humanitarian assistance to those who 
have served our country so well.
    We would be happy to work with the Subcommittees on these 
proposals, and SSA looks forward to continuing to work with Congress in 
our ongoing efforts to promote sound public policy and improve program 
administration. Thank you and I will be glad to answer any questions 
you may have.

                                 

    Chairman NEAL. Thank you, Mr. Rust.
    The Chair would now like to recognize Mr. McDermott for 
inquiry.
    Mr. MCDERMOTT. Thank you, Mr. Rust, for coming up. I 
appreciate Social Security coming. Treasury was invited, but 
said they didn't have sufficient time to prepare themselves. So 
I am glad you got your act together and got up here.
    Mr. RUST. You may have to wait until you hear my answers to 
your questions to see if we got our act together, Mr. 
McDermott.
    Mr. MCDERMOTT. I will take my chances. I just want to 
clarify something for our understanding how this developed. 
Uniform allowances, are they unearned income or earned income?
    Mr. RUST. Unearned income.
    Mr. MCDERMOTT. Basic allowance for subsistence, unearned or 
earned?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Reenlistment bonuses?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Foreign duty pay?
    Mr. RUST. Unearned.
    Chairman NEAL. Demolition duty pay?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Aviation continuation pay?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Dive pay?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Submarines?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Hardship duty for a location?
    Mr. RUST. Unearned.
    Mr. MCDERMOTT. Hazardous duty?
    Mr. RUST. Unearned, under current law.
    Mr. MCDERMOTT. Why was it set up so that all these were 
made unearned income?
    Mr. RUST. As a general rule--and, you know, we are an 
agency where there is always an exception to the general rule--
but in the general rule, earned income is income against which 
the FICA tax is applied. And if the FICA tax, the Social 
Security tax, is not applied, then it for the most part falls 
into the category of unearned income and is treated that way.
    What the proposals before the Committee today will do is 
change the way those particular categories are counted. It will 
move almost all of those from unearned to earned income for 
purposes of calculation for the SSI program.
    Mr. MCDERMOTT. For the purposes of SSI, for the 
calculation?
    Mr. RUST. For the purposes of SSI.
    Mr. MCDERMOTT. Now tell us what the difference is. Why is 
this better for somebody, to make it earned income for the 
purposes of SSI?
    Mr. RUST. Earned income is treated in a different way 
because, one, you have the FICA tax application, but more 
importantly, there is a preference for work, an incentive for 
work, in the SSI program. So earned income has always had 
essentially a higher status than unearned income.
    Let me give you an example that I think will probably 
clarify this a little bit. The family of an active duty 
servicemember could be receiving basic pay of $1,459 per month, 
and a military housing allowance of $1,087--a total of $2,546. 
The housing allowance portion is counted as unearned income. 
Because of the less-favorable treatment of unearned income for 
SSI purposes, in calculating SSI eligibility for a disabled 
child, we would ``count'' $499. In determining the benefit for 
the child, we deduct the countable income ($499) from the 
Federal Benefit Rate ($623 in 2007). Thus, the disabled child 
in the military family would receive $124 in SSI benefits.
    But an identical civilian family with the same total income 
of $2,546 would receive all income through wages (earned 
income) and would pay rent via a portion of the wages. Thus, we 
would count only $121 of the civilian's wages in determining 
SSI eligibility for the disabled child. Assuming there is no 
other income to either family, the disabled child in the 
civilian family would receive $502 in SSI benefits, nearly four 
times more than the child in the military family.
    Mr. MCDERMOTT. It is okay to ask one of your staff people 
to come over and whisper in your ear.
    Chairman NEAL. You would be surprised. We do it all the 
time.
    [Laughter.]
    Mr. RUST. Roughly, we count about one-half of an 
individual's earned income.
    Mr. MCDERMOTT. You can have her come up and sit at the 
table with you, or one of your staff people.
    Mr. RUST. Mr. Chairman, if that would be okay?
    Mr. MCDERMOTT. Yes. Of course. We are actually trying to 
learn how it works. Okay? We are not trying to fry anybody.
    Mr. RUST. Thank you. This is the Assistant Deputy 
Commissioner, Marianna LaCanfora.
    Ms. LACANFORA. Good morning. To make a complex issue----
    Mr. RUST. Complex.
    Ms. LACANFORA. Excuse me. Good morning. To make a complex 
issue as simple as possible, I think maybe the easiest way to 
explain it is that with earned income, wages, we only count 
that earned income--we generally take one-half of it, and we 
count it against the benefit amount; whereas with unearned 
income, we actually count almost the total unearned income, 
dollar for dollar, against the benefit amount.
    So basically, we penalize a beneficiary based on the 
receipt of unearned income more heavily than we do earned 
income. And the genesis of that I believe has to do with the 
fact that we were trying to provide an incentive for people to 
return to work, so wages--in other words, earned income--are 
treated more favorably under the SSI program.
    This legislation will bring the treatment of income into 
parity for military families.
    Mr. MCDERMOTT. Okay. Thank you very much. I see my time is 
exhausted, so I will leave the technical questions to other 
Members if they wish. Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. McDermott.
    The Chair would now like to recognize Mr. Weller for 
inquiry.
    Mr. WELLER. Thank you, Mr. Chairman. Commissioner, welcome 
before our Subcommittees this morning.
    Mr. Reynolds has a proposal which eliminates the offset of 
SSI benefits to reflect State blind veterans annuity. And I 
understand there are four States that currently operate such a 
program, New York, New Jersey, Pennsylvania, and Massachusetts.
    Are you aware of any other States that are considering 
adding an additional program similar to this proposal?
    Mr. RUST. We are not aware of any such States at this time.
    Mr. WELLER. Do you believe that enactment of Mr. Reynolds' 
legislation in the law would encourage other States to start 
providing this type of assistance for blind veterans?
    Mr. RUST. The way the language is written in the draft we 
have, it would cover any State that would choose to enact such 
a program. So I think the answer probably is yes, it would, or 
it could.
    Mr. WELLER. So it would make it more attractive for a State 
such as mine to provide such assistance. You would believe that 
based on your experience?
    Mr. RUST. Well, I think the State would probably act 
because of its own dynamic, its own desire to serve the 
veterans within that State. But I think the more favorable 
treatment under SSI would certainly be a favorable 
consideration.
    Mr. WELLER. Is there any reason this special treatment 
should be solely limited to blind veterans? For example, do 
States operate State annuities for other disabled veterans?
    Mr. RUST. The disability rules under Social Security 
already have a preferential treatment for blind, both veterans 
and non-veterans. So it is quite dramatic in terms of the more 
preferential treatment for blind in both the SSDI program and 
the SSI program for disability. So I think there is sort of a 
history of showing preferential treatment to the blind.
    Mr. WELLER. And explain then for other annuities for other 
types of disabilities where there are annuities provided at the 
State level, how are they treated differently compared to for 
blind veterans?
    Mr. RUST. The general rule is that if the annuity or if the 
benefit at the State level is either State or locally funded, 
we exclude that income, that payment, from consideration for 
SSI benefits. So it is excluded. If there is some Federal money 
in it, like in TANF, then it is counted as unearned income for 
the calculations.
    So as long as the State were to set up a program that was 
100 percent State or locally paid and needs-based, it would be 
excluded from SSI consideration.
    Mr. WELLER. And has your agency taken a position on Mr. 
Reynolds' proposal?
    Mr. RUST. We are looking at it. We haven't had time to cost 
it all out and do the interagency review. That is why my 
testimony I think is basically quite favorable to the 
provision. But we have not yet been able to get the 
Administration position on it.
    Mr. WELLER. And how quickly can you provide an 
Administration position for Mr. Reynolds?
    Mr. RUST. A lot of that is outside the control of the 
Social Security Administration because OMB would really be the 
one that would coordinate that. So I don't know that I could 
give you an estimate. We will request it immediately.
    Mr. WELLER. And has the Social Security Administration made 
a recommendation to OMB on what position the Administration 
should take?
    Mr. RUST. They cleared my testimony for today with the 
statement that it was fair and appropriate and reasonable to 
look at this provision.
    Mr. WELLER. So you have recommended then that they support 
this proposal?
    Mr. RUST. It is our position that this is a reasonable 
thing to do, an appropriate thing to do. We would be supportive 
of it.
    Mr. WELLER. Thank you, Commissioner, and thank you for 
being here this morning.
    Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. Weller.
    The Chair would now recognize Mr. Herger for inquiry.
    Mr. HERGER. Thank you, Mr. Chairman.
    Mr. Rust, I think it is really outstanding that we have a 
program that is working to get the disabled employed and being 
productive, and such valuable service through the AmeriCorps. 
And I would like to explore that further if I could.
    Could you tell me how many hours of work does the average 
AmeriCorps participant perform per year?
    Mr. RUST. Mr. Herger, I guess you would have to direct that 
question really to the AmeriCorps agency. I don't know that.
    Mr. HERGER. Is there anyone on your staff that might have 
an idea?
    Mr. RUST. No. I mean, that is a different program, a 
different agency.
    Mr. HERGER. Could you tell me maybe about SSI recipients 
who--what is the typical number of hours that they work or 
perform--I don't know if you know that--per year?
    Mr. RUST. You mean in terms of the ones who would be 
working in one of these--either the military or in the 
AmeriCorps program getting SSI----
    Mr. HERGER. Yes.
    Mr. RUST [continuing]. And being impacted by this 
provision? The number is probably very small. For one of the 
provisions, we think there are probably about 3,000 people 
currently receiving SSI, and about maybe 200 more a year who 
could become eligible. And for the other provisions, we are 
assuming fewer than 500. So we are probably talking in total of 
somewhere in the neighborhood of 3,000 to 3,500 people who 
could be affected by all three of these SSI provisions in this 
bill.
    Mr. HERGER. Any idea what the stipend is or other 
assistance that they receive for the service that they do, 
those that are involved?
    Mr. RUST. No, sir.
    Mr. HERGER. Okay. I thank you, Mr. Chairman. I yield back 
my time.
    Chairman NEAL. Thank you, Mr. Herger.
    The Chair will now recognize Mr. Reynolds to inquire.
    Mr. REYNOLDS. I thank the Chairman.
    I appreciate the Social Security Administration's comments 
of support of the legislation that is included on the annuity 
payments. My understanding in my home State of New York, the 
State began annuities under World War I, and it was about 500 
per month, and raised it to a thousand.
    And we find that unfortunately, just due to the current 
law, all that money goes back as the annuitant has to return 
that money because it caps. So I think we are moving in the 
right direction both on inflation, plus it is just plain the 
right thing to do. We have seen a lot of testimony on it. And I 
appreciate your comments, and will look forward to what you 
think the cost is.
    Also, when I originally have looked at the legislation over 
different periods of time since 2000, there were times where I 
restricted it to the four States because that is what the 
previous Chairman would have wanted, if I could have even 
advanced this legislation. And now I am pleased to see that 
Chairman Rangel and others are exploring the aspect that any 
State that may want to participate can.
    But I think we don't want to lose sight in the testimony of 
inquiry from my colleague, Mr. Weller, that the States still 
have to put up the cash here. And so States will have to 
reflect: Do we want to follow the four States that are already 
doing this with some sort of an investment into an annuity 
program? And I think that is part of the checks and balance, is 
the State's own participation in the program. And I appreciate 
you, Mr. Rust.
    And I know this is not your domain, but I was also 
disappointed on the recent decision of the Social Security 
Administration to use the Buffalo office as a pilot for closing 
the office early. I will be sending a letter to the Acting 
Commissioner, and I hope you will convey that, and will follow 
up on that shortly.
    We have an older population in upstate western New York, 
and seeing face-to-face solutions versus toll-free numbers I 
think would go a lot farther along. And I will make an appeal 
that while the pilot is underway, we can't seem to make better 
accommodations to take care of people we are serving. Thank 
you.
    Mr. RUST. Mr. Reynolds, if I could, that is another Deputy 
Commissioner's area. And I believe that Chairman Rangel is 
scheduling a meeting for Members of the Committee and Ms. 
McMahon, the Deputy Commissioner for Operations, to discuss 
these issues. I think it is scheduled within the next week or 
so. I don't remember the exact date, but I think that we are 
very interested in talking to the Members about the issue.
    And let me just--if I can just digress for a second, Mr. 
Chairman, I think it is helpful if you would understand that we 
are an agency under some stress right now. In January, 
February, and March of next year, we will slip under 60,000 
employees for the first time since 1973.
    And we have the baby boomers about to retire, and other 
workloads. So we are feeling a lot of stress across our 
programs right now in terms of how we can maintain the kind of 
service the public expects from us with somewhat more 
constrained resources.
    So, I would just add that as a sort of an aside. But it is 
something that is very much on our minds as we try to run these 
programs.
    Mr. REYNOLDS. Sir, if I could reclaim my time for just a 
second, I would just--in the opening of my thought on this, I 
said I realize that is not your domain. But because you have 
taken such time to want to defend the Administration's 
position, let me just be perfectly clear.
    I intend to watch the pilot program. It is an 
administrative decision, and I will register my displeasure 
with the Acting Commissioner. But nevertheless, we are taking 
less face time of the Social Security Administration dealing 
with both seniors and others who are dependent upon getting 
answers. And that is a concern to me in western New York. And I 
will be watching very closely as to the outcome of your pilot 
program.
    Mr. RUST. If you would want to meet directly with Ms. 
McMahon, I am sure she would be more than glad to meet with you 
on that.
    Chairman NEAL. Mr. English is recognized to inquire.
    Mr. ENGLISH. Thank you, Mr. Chairman.
    Mr. Rust, I think your point is very well taken, that your 
agency is under a great deal of pressure, And I suppose on that 
point, I would like to particularly follow up with regard to 
this legislation.
    The draft legislation suggests that the three SSI changes 
for participants will be, and I quote, ``effective with respect 
to benefits payable for months beginning after 60 days after 
the date of enactment of this Act.'' So in general, that would 
be no more than 3 months.
    Given the fact that your agency is under stress, is that 
enough time for SSA to make sure that the correct payments are 
being made?
    Mr. RUST. We think so.
    Mr. ENGLISH. I note that the legislation does not provide 
for any additional administrative funds. And SSA has recently 
expressed concern about having sufficient administrative 
funding to handle current workloads. Do you see any issues on 
that point raised by this legislation?
    Mr. RUST. If the numbers are about what I quoted a little 
bit ago, probably somewhere between 3- and 4,000 people, we can 
handle that within our current budget situation, remembering 
that we are across the board under stress.
    Mr. ENGLISH. Very good. On a different point, I think that 
our disability system has to do everything it can to encourage 
disabled Americans to work when they are able to. From your 
perspective, is there any evidence that SSI recipients have 
refrained from participating in AmeriCorps as a result of the 
disincentives that this legislation addresses, essentially 
current law?
    Mr. RUST. I don't think we would have any way of knowing 
that.
    Mr. ENGLISH. In your view, if the proposal before us is 
adopted, do you have any estimate of how many more SSI 
recipients might participate at AmeriCorps? You wouldn't have a 
way of evaluating that?
    Mr. RUST. We wouldn't have any way of even guessing on 
that.
    Mr. ENGLISH. Thank you, Mr. Rust. And thank you for your 
testimony.
    Mr. RUST. Thank you.
    Chairman NEAL. Are there any other questions? The 
gentlelady from Nevada is recognized to inquire.
    Ms. BERKLEY. Thank you, Mr. Chairman. And thank you, Mr. 
Rust, for coming and giving us your testimony.
    I am not sure that this is pertinent to what we are 
discussing, but I wanted to follow up on what Mr. Reynolds 
said. In addition to having the fastest growing veterans 
population in my congressional district, I have the fastest 
growing senior population.
    Because of the large number of complaints, and I recognize 
that this doesn't come under your domain, but in response to an 
amazing number of telephone calls from my constituents and 
telephone calls from the employees of my Social Security 
offices in Las Vegas, I paid a spot visit to the newest 
facility.
    And I can tell you that the line was around the block when 
I--the employees are stretched beyond what they can possibly, 
possibly do to deliver necessary services to my constituents. 
And my constituents, many of them, especially the older women, 
there wasn't enough seating. And this is a brand new facility. 
And they were in tears because they had spent hours in line and 
couldn't spend another minute on their feet.
    And this is a situation that absolutely has to be 
corrected. It is horrible. And again, I just wanted to put this 
on the record for the future. And I am sure you are aware of 
these problems.
    Mr. RUST. We are under pressure to look for ways to make 
the program more administrable, if you want to use that term, 
to look for ways to simplify the program.
    That is one of the reasons, in the testimony today, one of 
the things we appreciate about the provisions in this bill are 
that they will help to make this program a little easier to 
administer because we have a very complicated program. It is a 
very complex program.
    And as I mentioned, just 5 years ago we had 66,000 
employees. So we are down 6,000, roughly, in the last 5 years. 
So it is a huge workload with a constrained workforce. So we do 
the best we can, but we are aware of those problems.
    And again, I would suggest that you may want to bring this 
to Linda McMahon's attention, our Deputy Commissioner for 
Operations, who is working with these problems day to day.
    Ms. BERKLEY. I will, and I thank you.
    Mr. RUST. Thank you.
    Chairman NEAL. Thank the gentlelady.
    Mr. Rust, we want to thank you for your testimony. And now 
we would like to have the third panel assemble and take 
position.
    Mr. RUST. Mr. Chairman, I started to try to give two 
examples, which I didn't do very artfully, of how income, 
unearned and earned, worked differently. When I correct the 
record, may I correct that example?
    Chairman NEAL. Without objection, you certainly can.
    Mr. RUST. Thank you, sir.
    Chairman NEAL. What I would like to do now is to recognize 
the Members of the Committee to introduce our guest panelists. 
And I would like to begin by recognizing Mr. Larson for an 
introduction.
    Mr. LARSON. Thank you, Mr. Chairman. And thank you again 
for holding this hearing on this very important legislation.
    Mr. Chairman, may I for the record seek unanimous consent 
to introduce the testimony of Chief Steven B. Westerman, the 
President of the International Association of Fire Chiefs, an 
organization that has worked very hard on this, who is not here 
today to testify?
    Chairman NEAL. Without objection.
    Mr. LARSON. And now, Mr. Chairman, I know that the 
legislation before us in this hearing is vitally important and 
compelling listening to the testimony of men and women who wear 
the uniform, and especially our veterans that are in the field.
    But it wasn't lost on Members of Congress, and certainly 
not on John McAuliffe, the gentleman I am going to introduce, 
that it wasn't the Army, the Navy, or the Marines, the FBI, or 
the CIA that responded at that World Trade Center, at the 
Pentagon, or in the fields of Pennsylvania. Indeed and in fact, 
it was our men and women who are the front lines of our effort 
here, our firefighters, police officers, and emergency medical 
teams.
    And it is my great pleasure to introduce to you today a 
gentleman who has been a volunteer firefighter and in that 
service since 1958. John McAuliffe served as fire chief of the 
Wethersfield Fire Department in my district from 1991 to 1996. 
I worked very closely with him as Senate President in the State 
of Connecticut on a number of issues as it relates to 
firefighters and volunteers in general.
    He is currently the Connecticut State Director of the 
National Volunteer Fire Council, as well as the Chairman of the 
Legislative Committee of the Connecticut State Firemen's 
Association, and understands these issues thoroughly.
    Like most events, as Mr. McDermott indicated earlier, we 
learn of things that are of importance through our 
constituents. And having traveled around to several volunteer 
fire departments and listened to a number of them, and 
especially from the Chairman's district in Massachusetts and 
mine, it is a great honor for me to introduce a man who is 
knowledgeable on all these fronts, John McAuliffe.
    Chairman NEAL. We thank you.
    And now the Chair would like to recognize Mr. Reynolds for 
an introduction.
    Mr. REYNOLDS. I thank the Chairman.
    It is my pleasure to introduce Deputy Director of the New 
York State Division of Veterans' Affairs, Michelle LaRock, who 
has served under both Governor Pataki and now Governor Spitzer. 
Ms. LaRock had dedicated more than a decade to public service 
in various capacities in my home State. In her current 
position, she draws on a wealth of experience and expertise 
gained through her own experience in the military as a veteran.
    She is a native of upstate New York, and has served 4 years 
in the Marines, including a tour of duty in the Middle East 
during the Persian Gulf War, as a lance corporal specializing 
in logistics and earning a Southwest Asia Service Medal.
    Appointed as Deputy Director in December 2005, Ms. LaRock 
works closely with Director George Basher and various field 
Deputy Directors in evaluating existing programs and 
recommending new practices and strategies to enhance the 
agency's services provided to New York's veterans community. 
She has considerable familiarity with New York's State annuity 
for blind veterans, and she has seen firsthand the challenges 
that current Federal SSI law poses both for blind veterans and 
for her agency in the administration of this annuity program.
    On behalf of the Ways and Means Committee, welcome, and we 
look forward to your testimony.
    Chairman NEAL. Thank you, Mr. Reynolds.
    And now I would like to recognize the gentleman from North 
Dakota, Mr. Pomeroy, for an introduction.
    Mr. POMEROY. Thank you, Mr. Chairman, and I appreciate 
being able to sit in with the Committee in the hearing today.
    We have a law on the books which guarantees the right of 
returning Guard and Reserve soldiers to seamlessly resume their 
private pension plan participation when they return to civilian 
employment. But there is a gap in this law, a very important 
gap that needs to be addressed. The law does not anticipate the 
circumstance where our soldier cannot return to work and resume 
pension plan participation because of losing their life while 
under deployment in service to our country.
    Essentially, under many pension plans, under this 
circumstance there is no survivor's benefit. There is just a 
return of moneys paid into the plan by the plan participant, 
our deceased soldier. This needs to be fixed, and I am very 
pleased to tell you that Congressman Doc Hastings and I have 
introduced a bill to address this. The bill is known as the 
Heroes Act.
    Testifying on it today will be Victoria ``Torrie'' Johnson. 
Victoria is the surviving spouse of Major Alan Johnson. He was 
born and raised on a farm in North Dakota and lost his life in 
Iraq, an IED attack, on January 26th of this year.
    Torrie, like her late husband, is an extraordinary person. 
She is very dedicated to service. Even while she deals with her 
personal grief, she serves as the family support volunteer 
coordinator for the Washington State Army National Guard doing 
her dead level best to help other families.
    Congressman Doc Hastings and I have been very grateful to 
Torrie for calling her situation to our attention. And we have 
so admired the work she has done in the State of Washington to 
try and get that fixed at the State level. But this really 
requires a Federal fix.
    She spent her own frequent flyer miles to come here to tell 
you her story today. And we just can't feel more gratitude for 
the courage and the determination of Torrie Johnson to get this 
situation fixed.
    Chairman NEAL. We thank the gentleman.
    And now let me introduce Mr. John Downing. Mr. Downing is 
unyielding in his advocacy on behalf of veterans everywhere. He 
is the President and Chief Executive Officer of United Veterans 
of America. And he has spoken for the incarcerated veteran, the 
mentally ill veteran, the homeless veteran, and the addicted 
veteran, as well as anybody in America.
    And with that, I would like to recognize Mr. Downing.

  STATEMENT OF JOHN F. DOWNING, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, UNITED VETERANS OF AMERICA, INC., LEEDS, MASSACHUSETTS

    Mr. DOWNING. Thank you, Chairman Neal, Congressman 
McDermott, Members of the Committee. On behalf of the hundreds 
of homeless veterans I serve every year, I am honored to be 
here today testifying on the Heroes Earnings Assistance and 
Relief Tax Act of 2008.
    I have the privilege of serving as President and CEO of 
United Veterans of America in Leeds, Massachusetts, with 
facilities serving homeless veterans also in Pittsfield, 
Massachusetts. We serve upward of 200 homeless veterans every 
day. Our program is based on a continuum of care, ranging from 
the treatment of trauma and mental health to substance abuse 
counseling, shelter, food, job training, and permanent housing. 
Our partners include the U.S. Department of Veterans Affairs, 
U.S. Department of Labor, HUD, and many State and local 
agencies.
    Shelter, treatment, and hope are the cornerstones of our 
work. The UVA hosts 120 men and women in transitional living on 
site at the VA Medical Center on a campus in Leeds, 
Massachusetts, a small section of Northampton, Massachusetts. 
Sixty more vets live in transitional housing in the Berkshire 
Veterans Residence in Pittsfield, Massachusetts, which opened 
in 2004. And there are 10 new studio apartments, funded through 
the U.S. Department of Housing and Urban Development, which 
provide permanent housing for homeless veterans with a 
disability at the Pittsfield site.
    We serve veterans primarily from the northeast United 
States. A few are referred to us from across the country. The 
average age of our population is 54, but the mean age is 
trending younger as we see more veterans of Operation Enduring 
Freedom and Operation Iraqi Freedom.
    Approximately 85 percent of our veterans suffer mental 
health and substance abuse issues. Some 10 percent are elderly, 
and by elderly we mean age 70 or older. Five percent of our 
veterans are women. More than 25 percent of our veterans have 
been diagnosed with post-traumatic stress disorder, and 28 
percent are on parole and probation, the majority of them from 
their addictions. Forty-two percent of the veterans in our care 
on any given day are members of our minority community.
    I could go on, but it would be easier for you to take a 
look at our website, www.unitedveterans.org, to learn more 
about the work we do and the extent of the work we do. I am 
supported by an intensely dedicated staff and a committed board 
of directors, and I enjoy a wonderful collaborative 
relationship with the Leeds VA Medical Center and the VA 
headquarters here in Washington.
    Currently, we are in the predevelopment stage of a 39-unit 
limited equity cooperative apartment development, to be built 
on our site in Pittsfield for formerly homeless veterans. This 
development will be owned cooperatively and managed by the 
formerly homeless veterans. The apartments will meet the 
highest standards of green building, incorporating energy 
efficiency, renewable energy, and alternative fuels. The 
housing will be sustainable in perpetuity for low-income 
veterans.
    Additionally, with reasonable support from the Federal 
Government, we can dedicate a portion of each veteran's rent to 
an individual deposit account, thus enabling formerly homeless 
veterans to realize the American dream of home ownership and 
building wealth through equity. This changes the end of the 
story for homeless veterans of U.S. military service.
    I would add that at this point, the Federal role in 
developing this housing has been minimal. In fact, we 
understand that the IRS rules prohibit the use of the Low-
Income Housing Tax Credits in building cooperatives. I would 
suggest that this Committee take a look at that rule.
    I believe that, however unintended, restrictive IRS rules 
governing the Low-Income Housing Tax Credit probably have 
prevented the creation of alternative models of supportive 
housing for people with disabilities.
    In general, to the best of my knowledge, the Federal 
Government has no program that supports exclusively the 
creation of permanent, affordable housing for veterans. I 
realize that this is a policy decision for consideration of the 
entire Congress and Administration, but I think it is something 
that needs to be brought to the forefront of our consciousness, 
that veterans are not a preferred class of people in the United 
States of America as we would legislate that for housing.
    Back home in the Commonwealth of Massachusetts, and under 
both Governor Romney and Governor Patrick, they are stepping up 
to the plate with State money and a willingness to support with 
Federal resources such a project such as with project-based 
Section 8s and VASH subsidies and HOME funds. At this point, 
however, Federal participation has been limited to relatively 
small direct appropriation from HUD, procured through the good 
offices of Congressman John Olver and Congressman Richard Neal. 
The UVA needs to complete this project with a reasonable, 
minimal debt load, and the Federal Government must become a 
partner with us in this.
    By the way, VASH, Veterans Affairs Supportive Housing, is a 
subject of the Federal Section 8 program that hasn't been 
funded in years. Both the House and the Senate this year are 
considering funding VASH. We emphatically endorse funding VASH, 
and we would suggest that VASH subsidies be flexible--that is, 
that the VASH subsidies could be both tenant-based and project-
based subsidies.
    I would add parenthetically that although not the purview 
of this Committee, I would ask Congress to amend the Fair 
Housing Act to include veterans of U.S. military services as a 
protected class. I mention this because if we are successful in 
creating permanent housing for veterans, we run the real risk 
of violating the fair housing laws by giving veterans 
priority--again, a Catch-22 situation which I am sure is 
unintentional, but which I am sure can be fixed.
    I mentioned changing the end of the story for homeless 
veterans, and I would like to go back to that just for a 
minute. Typically, the veterans in our care, both men and 
women, cycle from the streets to the shelter, back to the 
neighborhood, and ultimately back to the shelter.
    Along the way, these men and women lose everything. It is 
hard to imagine, but typically every contact with family and 
community has been lost. Jobs, houses, friends, self-respect, 
personal dignity, personal hygiene--it is all gone. The dignity 
is gone for the men and women when they walk into my facility.
    Only by creating permanent, affordable housing for veterans 
can we change this pattern. By creating permanent, affordable 
housing opportunities, whether it is rental, cooperative, or 
homeownership, and by bringing comprehensive support services 
to the veterans in this housing, we can change the end of the 
story once and for all. In the long run, permanent supportive 
housing is less expensive than shelter. And finally, our 
veterans deserve better than what we are doing today.
    The beauty of the project that we are building in 
Pittsfield is that it is replicable. With a little help from 
the banks, States, and Federal Government, this type of housing 
can be adapted for any part of the country. We are working now 
with the VA Medical Center in Leeds to create another limited 
equity cooperative on the grounds of the medical center.
    Across the country, VA Medical Center campuses typically 
enjoy lots of unused green space. A project like ours could be 
built on the grounds of any VA Medical Center. Working with the 
VA, nonprofit developers could lease the land at a nominal rate 
while taking the entire responsibility for building and 
operating the permanent housing on that land. No additional 
expense would accrue to the VA, and the VA Medical Center would 
have a new outpatient population at its doorstep.
    But the best reason for doing this is that it really serves 
veterans. And that is what we are talking about today, serving 
veterans. Now, I am not the expert in the Tax Code. But I do 
know that any portion of this Tax Code that could be changed to 
benefit veterans should be changed. Our veterans have paid the 
price. They don't need to be nickeled and dimed by the Tax 
Code. If anything, we ought to be creating tax credits for 
military service.
    Soon, we hope, we will be welcoming home the veterans of 
Operation Enduring Freedom and Operation Iraqi Freedom. After 
all the celebrations, will we once again turn to other business 
and forget our veterans? Twenty years from now, will someone be 
sitting in this Chair testifying to the needs of homeless 
veterans?
    I hope not. And I believe by the commitment that this 
Committee is making to begin to look at all the little 
bureaucratic chinks that make it difficult for people to 
succeed, that working together we will change the end of the 
story for all our veterans. Thank you.
    [The prepared statement of Mr. Downing follows:]

  Prepared Statement of John F. Downing, President and Chief Executive
    Officer, United Veterans of America, Inc., Leeds, Massachusetts

    Congressman Neal and Congressman McDermott, Members of the 
Committee: On behalf of the hundreds of homeless veterans served every 
year by United Veterans of America, I am honored by your invitation to 
be here today testifying on the ``Heroes Earnings Assistance and Relief 
Act of 2007.''
    I have the privilege of serving as President and CEO of United 
Veterans of America, Inc. Based in Leeds, Massachusetts, with 
facilities serving homeless veterans in Pittsfield and Leeds, UVA 
serves upwards of 200 veterans every day. Our program is based on a 
continuum of care, ranging from the treatment of trauma and mental 
health issues to substance abuse counseling, shelter, food and other 
necessities, job training, and permanent housing. Our partners include 
the U.S. Department of Veterans Affairs, the U.S. Department of Labor, 
HUD, and many State and local agencies. Shelter, treatment, and hope 
are our cornerstones.
    UVA hosts 120 men and women in transitional living on site at the 
VA Medical Center campus in the Leeds section of Northampton, 
Massachusetts. Sixty more vets live in transitional housing at our 
Berkshire Veterans Residence in Pittsfield, Massachusetts, which opened 
in September 2004. Ten new studio apartments, funded through the U.S. 
Department of Housing and Urban Development, provide permanent housing 
for homeless veterans with a disability at the Pittsfield site.
    UVA serves veterans primarily from the northeast United States. A 
few are referred to us from across the country. The average age of our 
population is 54, but the mean age is trending younger as we see more 
veterans of Operation Enduring Freedom and Operation Iraqi Freedom. 
Approximately 85 percent of our vets suffer mental health and/or 
substance abuse issues. Some 10 percent are elderly, at age 70 or 
older. Five percent of our vets are women. More than 25 percent of our 
vets have been diagnosed with post-traumatic stress disorder (PTSD); 28 
percent are on parole or probation; 42 percent of UVA's vets are 
minority.
    I could go on, but I would invite you to take a look at our website 
at www. unitedveterans.org to learn more about UVA. I am supported by a 
dedicated staff and a committed board of directors, and I enjoy a 
wonderful, collaborative relationship with our VA Medical Center and 
with VA Headquarters here in Washington.
    Currently we are in the pre-development stage of a 39 unit limited 
equity cooperative, to be built on our site in Pittsfield, 
Massachusetts. The development will be owned cooperatively and managed 
by formerly homeless veterans. These apartments will meet the highest 
standards of ``green'' building, incorporating energy efficiency, 
renewable energy, and alternative fuels. This housing will be 
sustainable in perpetuity for low-income veterans. Additionally, with 
reasonable support from the Federal Government, we can dedicate a 
portion of each veteran's rent to an Individual Development Account 
(IDA), thus enabling formerly homeless veterans to realize the American 
dream of home ownership and building wealth through equity. This 
changes the end of the story for homeless veterans of U.S. military 
service.
    I would add that, at this point, the Federal role in developing 
this housing has been minimal. In fact, we understand that IRS rules 
prohibit the use of the Low Income Housing Tax Credit in building 
cooperatives. I would suggest that this Committee take a close look at 
that rule. I believe that, however unintended, restrictive IRS rules 
governing the Low Income Housing Tax Credit probably have prevented the 
creation of alternative models of supportive housing for people with 
disabilities. In general, to the best of my knowledge, the Federal 
Government has no program that supports exclusively the creation of 
permanent, affordable housing for veterans. I realize that this is a 
policy decision for the consideration of the entire Congress and the 
Administration.
    Back home, the Commonwealth of Massachusetts, under both Governor 
Romney and Governor Patrick, is stepping up to the plate with State 
money and a willingness to support the project with Federal resources, 
such as project-based Section 8 subsidies, VASH subsidies, and HOME 
funds. At this point, however, Federal participation has been limited 
to a relatively small direct appropriation from HUD, procured through 
the good offices of Congressmen John Olver and Richard Neal. For UVA to 
complete this project with a reasonable, minimal debt load, the Federal 
Government must be more of a partner with us.
    By the way, VASH--Veterans Affairs Supportive Housing--is a subset 
of the Federal Section 8 program that hasn't been funded in years. Both 
the House and the Senate this year are considering funding VASH. We 
emphatically endorse funding VASH. And we would suggest that VASH 
subsidies be flexible, that is VASH subsidies could be both tenant-
based and project-based subsidies.
    I would add, parenthetically, that, although not the purview of 
this Committee, I would ask Congress to amend the Fair Housing Act to 
include veterans of U.S. military service as a protected class. I 
mention this because, if we are successful in creating permanent 
housing for veterans, we run the real risk of violating Fair Housing 
laws by giving veterans priority--again, a Catch-22 situation which I'm 
sure is unintentional, and which I'm sure can be fixed.
    I mentioned changing the end of the story for homeless veterans, 
and I'd like to go back to that. Typically, the veterans in our care, 
both men and women, cycle from the streets to shelter, back to the old 
neighborhood and, ultimately, back to shelter. Along the way, these men 
and women lose everything. It's hard to imagine but, typically, every 
contact with family and community has been lost. Jobs, houses, family 
ties, self-respect, sobriety, mental health, personal hygiene--all 
gone. Dignity--gone. At UVA our vets come to see each other as their 
community. Only by creating permanent, affordable housing for veterans 
can we change that pattern. By creating permanent, affordable housing 
opportunities, whether it's rental, cooperative, or home ownership, and 
by bringing comprehensive support services to the veterans in this 
housing, we can change the end of that story once and for all. In the 
long run, permanent supportive housing is less expensive than shelter. 
And, finally, our veterans deserve better than what we're doing today.
    The beauty of the project we're building in Pittsfield is that it 
is replicable. With a little help from the banks and State and Federal 
Government, this type of housing can be adapted for any part of the 
country. We are working now with the VA Medical Center in Leeds, 
Massachusetts to create another limited equity cooperative on the 
grounds of the Medical Center. Across the country, VA Medical Center 
campuses typically enjoy lots of unused green space. A project like 
ours could be built on the grounds of any VA Medical Center. Working 
with the VA, nonprofit developers could lease the land at a nominal 
rate, while taking the entire responsibility for building and operating 
the permanent housing on that land. No additional expense would accrue 
to the VA, and the VA Medical Center would have a new outpatient 
population on its doorstep. But the best reason for doing this is that 
it serves veterans. And that's what we're talking about today--serving 
veterans. Now, I am not an expert in the Tax Code. But I do know that 
any portion of the Tax Code that could be changed to benefit veterans 
should be changed. Our veterans have paid the price. They don't need to 
be nickeled and dimed by the Tax Code. If anything, we ought to be 
creating tax credits for military service.
    Soon, we hope, we will be welcoming home the veterans of Operation 
Enduring Freedom and Operation Iraqi Freedom. After all the 
celebrations, will we, once again, turn to other business and forget 
our veterans? Twenty years from now, will someone else be sitting in 
this chair testifying to the needs of homeless veterans?

                                 

    Chairman NEAL. Thank you, Mr. Downing.
    Ms. Johnson, we are honored by your presence. Would you 
proceed?

   STATEMENT OF VICTORIA C. JOHNSON, WIDOW OF MAJOR ALAN R. 
         JOHNSON, U.S. ARMY RESERVE, YAKIMA, WASHINGTON

    Ms. JOHNSON. Good morning, Chairman Neal and Chairman 
McDermott, and Ranking Members English and Weller. Thank you so 
much for allowing this opportunity to share the concerns of our 
military personnel and families.
    Again, my name is Victoria Johnson. My husband was Major 
Alan R. Johnson, who was killed January 26, 2007, in Iraq. I 
want to tell you a little bit about my husband. He has 26 years 
military service, okay, combined with National Guard and 
Reserve. It started in North Dakota, with the 141st Engineer 
Battalion. Moving to Washington State, he was with the 81st 
Brigade, 303rd Armor.
    Just recently, before his service in Iraq, he was attached 
to the 402nd Civil Affairs Battalion from New York. The men 
that he went over to Iraq with, many of them were firsthand 
part of 9/11.
    As a civilian, my husband was a sergeant for Yakima County 
Department of Corrections, so he was a public servant both 
ways. Many of the men and women that he was over there with--
when you are talking Reservists and National Guard, whether it 
be Army Reserve, National Guard, many of them are public 
servants here. They may start out active duty military, and 
then they have it in their heart. So they are over here in our 
country becoming--I mean, they go to firemen. They go to law 
enforcement. They go to any type of a public servant field.
    So it is almost a dual purpose that they have. The 
experience that they have here in this country in their jobs, 
and not just law enforcement, not just the fire department, but 
financial advisors, everything--with the Civil Affairs, they 
were over there helping the Iraqi government build their 
government. They were working with the Iraqi people. They took 
what they had with their civilian jobs here to help over there.
    So it was very important, those skills that they had here 
as civilians. And I just want that recognized, that part of the 
strength of our military is the strength that we give our 
individuals in this country as civilians. It is very important.
    I was married to him for 19 out of those 26 years. And I 
believe that the strong leader that he was depended a lot on 
the strength his family had. We were a team. We worked together 
and we supported each other. The stronger those families are 
here at home, the stronger they can be, whether they are here 
or over there. So a lot of the focus needs to be on those 
families so that they can do the jobs that they need to do and 
not worry about those families.
    He had 15 years working for the county, and there was a 
State pension. Now, he was climbing that ladder with Yakima 
County as a sergeant. He planned on coming back, being promoted 
to chief, becoming administrator. In no way did he not plan on 
coming back. In no way did he not plan on moving up that 
ladder.
    I received a letter from the State, because it was a State 
pension plan at the county, saying that he would only be given 
the money that he put in as his contributions. There would be 
no matching contributions. My husband has always fought for 
what is right, and I wanted to continue doing so.
    And he worked hard for that pension and our future. And 
part of my connection with him is I want to continue to have 
the future that we planned together to have. And receiving that 
letter saying that I would only get what he put in was just a 
slap in the face on top of the pain.
    I cannot explain to you the pain involved when you have 
military people come to your door at night in uniform. You 
know, you already know--from the movies and everything else--
you already know what they are going to tell you. The pain is 
unbelievable, and I don't wish anybody to have to go through 
it.
    But then to deal with the problems afterward, what I did is 
with help from the Representatives in Washington State, we went 
to Olympia to find out that--I don't know quote unquote or how 
it works or anything, but it sounds like he was the first State 
employee actually killed in action since Vietnam. And really, 
it is all things that just haven't been changed since then. It 
is technicalities, wording, paperwork. They had never dealt 
with the situation before.
    He was 44 years old when he died. He did not quit his job. 
He was being treated as though he was terminated and quit. He 
didn't do that. He was over serving our country, and was 
killed.
    Because the pension plan considered him voluntarily 
terminated, quit, I mean, it just, like I said, would only pay 
me that. But if he had been an active employee at that time and 
still considered and everything, the survivor benefits paid to 
the family would have been more.
    The bill would assure that the pension survivor benefits 
would be paid as if he had returned to work with Yakima County. 
So that is what I did in Olympia, is to try to have it taken 
care of.
    This picture here, right here, these are the men that were 
with my husband when he died. Those are Reservists, each one of 
those. And you have a paramedic from New York in the New York 
Fire Department. You have a carpenter. You have financial 
advisors. All these people are the type of people that we are 
talking about.
    And many of these are, again, public servants. If they had 
been killed over there, they would be dealing with exactly the 
same thing that I am dealing with. Their family would be faced 
with exactly the same thing.
    I urge you to make sure that they and their families can 
continue to rely on the survivor benefits that they have earned 
through their civilian employers' pension plans. I ask that 
their families get the benefits that their spouses worked for 
before they were called to serve our country on active military 
service.
    Again, I worked with the Washington State Legislature to 
change its pension plan to recognize the sacrifices that 
members of the Guard and Reservists may be called to make for 
our country, and I urge the U.S. Congress to do the same. Our 
Guard and Reservists should know that the families they leave 
behind will be honored to have the future that they have worked 
so hard to provide. And again, their strength over there is 
going to be the strength they have here. They need to know that 
the country they are sacrificing everything for will take care 
of their families.
    We have a change in the type of military serving our 
Nation. Over 81,000 Reservists and National Guard members have 
been called to duty and have responded to that call. The world 
of being married to a Reservist or a member of the National 
Guard has changed in ways that they--there is no way 20 years 
ago that we would have known this.
    Today my life has changed. Oh, yes. It has been thrown 
upside down and backward. But my husband always said there was 
light in the tunnel. He always--he never gave up. It was always 
win/win. In fact, I want you to know that this binder was the 
one that he had in Iraq with him. So it went over there, and it 
stays with me.
    And in the back of this book, there are a couple of quotes. 
For instance, one of the quotes he had in his book over there 
is, ``The love of a wife is one of God's most precious gifts to 
man, and your love for her is worth whatever it costs.'' His 
love for his country was also worth that. He believed in his 
country, and was willing to make that ultimate sacrifice. He 
also has the quote that: ``The greatest thing a father can do 
for his children is to love their mother.'' I think the 
greatest thing that this country can do is to love the families 
of these soldiers.
    Please, I ask you to make the changes in pension laws to 
support those families who find that their loved ones cannot 
come back to those former jobs. Please make sure that the 
families of veterans who have given their lives for their 
country receive the full benefits that their spouses have 
earned. And yes, there will be lots of parties for those that 
come back. But there are some that will not come back. Thank 
you.
    [The prepared statement of Ms. Johnson follows:]

               Prepared Statement of Victoria C. Johnson,
 Widow of Major Alan R. Johnson, U.S. Army Reserve, Yakima, Washington

    Good morning, Chairman Neal and Chairman McDermott and Ranking 
Members English and Weller. I am Victoria Johnson and I live in Yakima, 
Washington. Thank you for holding this hearing today on the situations 
faced by the brave men and women who are serving in the military and 
their families.
    My husband, Major Alan R. Johnson, was killed on January 26th of 
this year. He had 26 years of military experience, most of it in 
National Guard and Reserve. My husband, like many young men and women, 
joined the Army National Guard after he graduated from high school in 
1981 and served as an enlisted member of the 141st Engineer Combat 
Battalion out of Jamestown, North Dakota. During his years in the 
National Guard he attended OCS and after moving to Washington was 
assigned to many leadership roles in the service. He transferred to the 
U.S. Army Reserve in 2003 and was deployed to Iraq in April 2006.
    As a member of the Guard and the Reserves, my husband had a 
civilian job. During his 26 years of serving in the Guard, he also 
spent 15 years working for Yakima County. When he was deployed, Alan 
was working as a sergeant in the Corrections Department of Yakima 
County; he was a shift supervisor for one of the largest jails in 
Washington State. He gave the county 100 percent effort in what he did 
and planned to come back from serving in Iraq and move up the ladder. 
He would be looking at a chief position or possibly administrator of 
the county jail had he returned as he had planned.
    When he was killed in Iraq, the pension covering the employees of 
the Yakima County Department of Corrections treated him as if he was 
somebody who volunteered to quit his job at the age of 44. My husband 
did not quit his job. He left to serve his country. As I mentioned, 
Alan planned to come back after he served his duty but he did not get 
that chance. Because the pension plan considered him a voluntarily 
terminated employee, the plan would have only paid me, as his widow, a 
survivor benefit equal to a refund of his contributions to the county 
pension; the money paid by Yakima County into the State pension plan 
would be kept by the retirement system.
    Had Alan been an active employee of Yakima County, the survivor 
benefits paid to our family would have been more, as a full death 
benefit. The pension in Washington State had adopted language based on 
the requirements of the Uniformed Services Employment and Reemployment 
Rights Act (USERRA) but there is a gap in the protection under that 
law. USERRA requires that servicemembers return to their civilian 
employers to claim their benefits under the law. My husband could not 
meet that requirement. I am grateful that H.R. 2540, the Honoring 
Existing Retirement Obligations for Every Servicemember Act, which 
Congressmen Pomeroy and Hastings introduced, addresses the gap that I 
fell into when Alan was killed. The bill would assure that his pension 
survivor benefits would be paid as if he had returned to work with 
Yakima County.
    The picture that you see in front of you are the men that were with 
Alan when he died. Those are your Reservists. All of those men in the 
Reserve have civilian jobs back home in the U.S. Their civilian 
experience enables each of them to bring a unique asset to our Nation's 
military. Those serving in the National Guard and the Reserve take the 
knowledge gained in their civilian occupations and bring that expertise 
with them as they serve in Iraq and across the world. They use their 
civilian skills to do good--supporting their missions in Iraq. It's a 
great asset.
    While Alan was here at home, he and all Reservists were building a 
foundation for their families' future through the retirement benefits 
provided in their civilian jobs. When called to serve on active duty, 
they go to support our country in Iraq, or wherever else in the world 
they are needed.
    I urge you to make sure that Reservists and National Guard members 
can continue to rely on the survivor benefits that they have earned 
through their civilian employers pension plans. I ask that their 
families get the benefits that our spouses worked for here before they 
were called to serve our country on active military service. I worked 
with the Washington State Legislature to change its pension system to 
recognize the sacrifices that members of the Guard and Reservists may 
be called to make for our country and I urge the U.S. Congress to do 
the same. Our Guard and Reservists should know that the families they 
leave behind will be allowed to have the future that they have worked 
so hard to provide.
    We have a change in the type of military serving our Nation. Over 
81,000 Reservists and National Guard members have been called to duty 
and have responded to that call.
    The world of being married to a Reservist or member of the National 
Guard has changed in ways that I could not know 20 years ago when Alan 
and I were married. Today, my life has changed and so have the lives of 
many other military families. I ask you to make changes in the pension 
laws to support those families who find their love ones cannot come 
back to their employer. Please make sure they get the full benefits 
that their spouses have earned.
    Thank you.

                                 

    Chairman NEAL. Thank you very much for your testimony, Ms. 
Johnson.
    The House floor has now scheduled three votes, and the 
Committee Members are required to go over for those votes. So 
the Chair will declare a recess for approximately 20 minutes.
    [Recess.]
    Chairman NEAL. Let me reconvene our panel. And I would like 
to recognize Mr. McAuliffe for his testimony.

   STATEMENT OF JOHN MCAULIFFE, CONNECTICUT STATE DIRECTOR, 
   NATIONAL VOLUNTEER FIRE COUNCIL, WETHERSFIELD, CONNECTICUT

    Mr. MCAULIFFE. I would like to thank the Chairman, Ranking 
Members, and other Members of the Subcommittees for the 
opportunity to be here today to express the views of the 
National Volunteer Fire Council on H.R. 943, the Volunteer 
Responder Incentive Protection Act. H.R. 943 would prohibit the 
Federal Government from taxing benefits provided by State and 
local units of government to volunteer firefighters and EMS 
personnel.
    Volunteer firefighters and EMS personnel are essential to 
our Nation's safety and security. All- and mostly-all volunteer 
fire departments protect approximately 38 percent of the 
country's population and more than 70 percent of the country's 
land area.
    A 2004 study by St. Joseph's University, in partnership 
with VFIS, which is the Volunteer Firemen's Insurance Service, 
revealed that volunteer first responders save the American 
taxpayers $37.2 billion per year. Without volunteer first 
responders, many communities simply would not be able to afford 
to provide firefighting and emergency medical services to all.
    According to the National Fire Protection Association, also 
known as NFPA, the number of volunteer firefighters in this 
country has decreased dramatically since the mid-1980s. In 
addition, NFPA statistics show that volunteer firefighters as a 
population are significantly older today than they were 20 
years ago.
    There are two tables and a more detailed explanation of the 
population issues facing the volunteer fire service that are 
included in the written testimony. However, I may want to point 
out that from the original printout, what happens when 
computers can't talk to printers properly, things change 
around, so it may be a little confusing. So if there is a 
question, our office can certainly clarify that for you.
    To cope with the dwindling and aging population of 
volunteer emergency responders, some States and many local 
units of government have discovered that providing benefits to 
volunteer emergency responders helps boost retention and 
recruitment. Volunteer benefits come in various forms. 
Communities provide length of service award programs, sometimes 
known as fire pension programs or LOSAPs, for volunteer first 
responders; various tax and fee reductions; small cash payments 
for emergency calls responded to; reimbursement for expenses 
incurred; and a variety of others ranging from free gym 
memberships to award ceremonies. The types and levels of 
benefit vary widely by State and community.
    Some States provide benefits, or at least authorize local 
units of government to provide benefits. Connecticut, New York, 
and Alaska have authorized, through enabling legislation, to 
have local units of government to provide property tax credits 
to their volunteer first responders. Delaware, Maryland, and 
South Carolina offer their volunteers State income tax credits.
    The Federal Government does not provide volunteer first 
responders with any taxable benefits, but the Federal 
Government does tax the benefits provided by State and local 
units of government. Federal taxation of volunteer first 
responder benefits has several effects. The most obvious effect 
is to reduce the value of the benefit to the volunteer.
    H.R. 943 excludes from gross income any property tax rebate 
or other benefit provided by State or local units of government 
to a member of a qualified emergency response organization. 
Excluding property tax rebates from gross income will be most 
beneficial in States like mine, where local units of government 
are allowed to offer up to $1,000 in property tax rebates.
    The other benefits that are not enumerated in H.R. 943 
would cover a wide range of benefits that are provided to 
volunteer emergency responders in every State. There are so 
many different types of incentives provided to volunteer 
emergency responders across the country that it would be nearly 
impossible to list them all. The broad language used in H.R. 
943 is extremely important so that States and communities will 
have the flexibility to provide whatever type benefit they find 
to be most effective as a retention and recruitment tool.
    Federal taxation also imposes a significant administrative 
burden on the units of government in small rural communities, 
which rely heavily on volunteer emergency services, that have 
limited staff to process the paperwork. Many of these 
communities have no staff at all and rely on marginally 
compensated elected officials to perform all the administrative 
functions.
    In addition to being an administrative burden, Federal 
taxation of benefits provided to volunteer first responders can 
also be confusing. Many communities issue volunteers 1099 tax 
forms when they should be issuing W-2 forms, and vice versa. 
Small communities with severely limited resources often find 
the administrative and legal barriers associated with providing 
benefits to volunteer emergency responders prohibitive. By 
eliminating the Federal taxation on these benefits, H.R. 943 
would make it much easier for smaller communities to provide 
them.
    The Joint Committee on Taxation estimates that passage of 
H.R. 943 would cost the Federal Government $1.58 billion over 
10 years. Each year, the services provided by volunteers--and I 
say each year--results in a savings to the taxpayers of $37.2 
billion. The tax savings derived from volunteer first 
responders compared to the average year cost incurred by 
passage of H.R. 943 results in a cost-to-savings ratio of 
approximately 42 cents per $100.
    NVFC supports passage of H.R. 943, either as a stand-alone 
bill or as a part of a package of multiple tax proposals in one 
bill.
    I would like to thank the Subcommittee for the opportunity 
to speak here today, and would be happy to take any questions 
at this time. Thank you.
    [The prepared statement of Mr. McAuliffe follows:]

   Prepared Statement of John McAuliffe, Connecticut State Director,
       National Volunteer Fire Council, Wethersfield, Connecticut

    I'd like to thank the Chairmen, Ranking Members and other Members 
of the Subcommittees for the opportunity to be here today to express 
the views of the National Volunteer Fire Council (NVFC) on H.R. 943, 
the Volunteer Responder Incentive Protection Act, which would prohibit 
the Federal Government from taxing benefits provided by State and local 
units of government to volunteer firefighters and EMS personnel.
    My name is John McAuliffe and it is an honor and a pleasure to 
appear before you today. I have been in the volunteer fire service 
since 1958, and served as Chief of the Wethersfield Fire Department 
from 1991-1996. I am currently the National Volunteer Fire Council's 
Connecticut State Director as well as the Chairman of the Connecticut 
State Firemen's Association's (CSFA) Legislative Committee. CSFA is a 
member of the NVFC, which represents the interests of the Nation's 
volunteer fire and emergency medical personnel who staff approximately 
30,000 fire and EMS agencies nationwide.
    Volunteer firefighters and EMS personnel are essential to our 
Nation's safety and security. All- and mostly-volunteer fire 
departments protect approximately 38 percent of the country's 
population and more than 70 percent of the country's land area. A 2004 
study by St. Joseph's University in partnership with VFIS revealed that 
volunteer first responders save American taxpayers $37.2 billion per 
year. Without volunteer first responders, many communities simply would 
not be able to afford to provide firefighting and emergency medical 
services at all.
    According to the National Fire Protection Association (NFPA) the 
number of volunteer firefighters in this country has decreased 
dramatically since the mid-1980s. In addition, NFPA statistics show 
that volunteer firefighters as a population are significantly older 
today than they were 20 years ago. In order to improve retention and 
recruitment, many States and communities provide benefits to their 
volunteer emergency responders. Federal taxation of these benefits 
reduces the incentive for the volunteers and creates administrative 
problems for local units of government. By eliminating Federal taxation 
of these benefits, H.R. 943 would be a tremendous boost for volunteer 
first responder recruitment and retention efforts in communities around 
the country.
    The number of volunteer firefighters in the country is decreasing. 
According to a National Fire Protection Association (NFPA) study, 
between 1983 and 1988, the number of volunteer firefighters in the 
country has decreased from close to 900,000 to approximately 800,000. 
Since 1988, the number of volunteers has fluctuated up and down but 
remained close to 800,000. Over that same period of time, the number of 
volunteer firefighters per person in this country has declined steadily 
by 26.7 percent.
                                Table 1

                                                      Number of Firefighters in the U.S., 1983-2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Total     Rate per 1,000    Career     Rate per 1,000    Volunteer    Rate per 1,000
                              Year                                 Number         People        Number         People         Number          People
--------------------------------------------------------------------------------------------------------------------------------------------------------

1983                                                             1,111,200             4.75     226,600             0.97       884,600             3.78

--------------------------------------------------------------------------------------------------------------------------------------------------------

1984                                                             1,129,100             4.78     231,600             0.98       897,750             3.80

--------------------------------------------------------------------------------------------------------------------------------------------------------

1985                                                             1,077,950             4.52     238,500             1.00       839,450             3.52

--------------------------------------------------------------------------------------------------------------------------------------------------------

1986                                                             1,045,950             4.35     237,750             0.99       808,200             3.36

--------------------------------------------------------------------------------------------------------------------------------------------------------

1987                                                             1,060,000             4.36     243,200             1.00       816,800             3.36

--------------------------------------------------------------------------------------------------------------------------------------------------------

1988                                                             1,040,750             4.25     252,500             1.03       788,250             3.22

--------------------------------------------------------------------------------------------------------------------------------------------------------

1989                                                             1,020,700             4.12     250,600             1.01       770,100             3.11

--------------------------------------------------------------------------------------------------------------------------------------------------------

1990                                                             1,025,650             4.11     253,000             1.01       772,650             3.10

--------------------------------------------------------------------------------------------------------------------------------------------------------

1991                                                             1,033,600             4.09     261,800             1.04       771,800             3.05

--------------------------------------------------------------------------------------------------------------------------------------------------------

1992                                                             1,058,300             4.14     253,000             0.99       805,300             3.15

--------------------------------------------------------------------------------------------------------------------------------------------------------

1993                                                             1,055,050             4.09     259,650             1.01       795,400             3.08

--------------------------------------------------------------------------------------------------------------------------------------------------------

1994                                                             1,073,600             4.12     265,700             1.02       807,900             3.10

--------------------------------------------------------------------------------------------------------------------------------------------------------

1995                                                             1,098,850             4.18     260,850             0.99       838,000             3.19

--------------------------------------------------------------------------------------------------------------------------------------------------------

1996                                                             1,081,800             4.07     266,300             1.00       815,500             3.07

--------------------------------------------------------------------------------------------------------------------------------------------------------

1997                                                             1,079,050             4.03     275,700             1.03       803,350             3.00

--------------------------------------------------------------------------------------------------------------------------------------------------------

1998                                                             1,082,500             4.00     278,300             1.03       804,200             2.97

--------------------------------------------------------------------------------------------------------------------------------------------------------

1999                                                             1,065,150             3.90     279,900             1.03       785,250             2.87

--------------------------------------------------------------------------------------------------------------------------------------------------------

2000                                                             1,064,150             3.86     286,800             1.04       777,350             2.82

--------------------------------------------------------------------------------------------------------------------------------------------------------

2001                                                             1,078,300             3.85     293,600             1.05       784,700             2.81

--------------------------------------------------------------------------------------------------------------------------------------------------------

2002                                                             1,108,250             3.89     291,650             1.02       816,600             2.87

--------------------------------------------------------------------------------------------------------------------------------------------------------

2003                                                             1,096,900             3.77     296,850             1.02       800,050             2.75

--------------------------------------------------------------------------------------------------------------------------------------------------------

2004                                                             1,100,750             3.76     305,150             1.04       795,600             2.72

--------------------------------------------------------------------------------------------------------------------------------------------------------

2005                                                             1,136,650             3.82     313,300             1.05       823,350             2.77

--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: NFPA Survey of Fire Departments for U.S. Fire Experience (1983-2005).



      
    Exacerbating the problems created by the decreasing number of 
volunteer firefighters, NFPA statistics show that volunteer 
firefighters as a group are aging. Table 2 on the next page shows three 
NFPA studies that measured the percentage of volunteer firefighters 
under 30, under 40, under 50 and over 50 in 1987, 1998 and 2005 (2005 
is the last year that NFPA collected age profile information for 
volunteer firefighters and 1987 was the first). The long term trend is 
that the percentage of volunteer firefighters under 30 and under 40 is 
decreasing while the percentage of volunteer firefighters over 40 and 
over 50 is increasing. This data suggests that departments are having 
difficulty recruiting new members.
                                Table 2

                             Age Profile of Firefighters By Size of Community, 2005
----------------------------------------------------------------------------------------------------------------
                                                            Mostly Volunteer Firefighters
                                   -----------------------------------------------------------------------------
         Size of Community              Percent          Percent          Percent          Percent
                                      Firefighters     Firefighters     Firefighters     Firefighters     Total
                                      under Age 30      Age 30-39        Age 40-49      Age 50 and up
----------------------------------------------------------------------------------------------------------------
10,000 to 24,999                             28.4%            31.2%            25.1%            16.3%    100.0%
----------------------------------------------------------------------------------------------------------------
5,000 to 9,999                              31.0             29.4             22.5             17.1     100.0
----------------------------------------------------------------------------------------------------------------
2,500 to 4,999                              29.5             28.4             23.1             19.0     100.0
----------------------------------------------------------------------------------------------------------------
Under 2,500                                 25.9             25.8             24.8             23.5     100.0
----------------------------------------------------------------------------------------------------------------
Source: NFPA Survey of Fire Departments for U.S. Fire Experience, 2005.


                             Age Profile of Firefighters By Size of Community, 1998
----------------------------------------------------------------------------------------------------------------
                                                            Mostly Volunteer Firefighters
                                   -----------------------------------------------------------------------------
         Size of Community              Percent          Percent          Percent          Percent
                                      Firefighters     Firefighters     Firefighters     Firefighters     Total
                                      under Age 30      Age 30-39        Age 40-49      Age 50 and up
----------------------------------------------------------------------------------------------------------------
10,000 to 24,999                             31.3%            32.1%            23.8%            12.7%    100.0%
----------------------------------------------------------------------------------------------------------------
5,000 to 9,999                              33.2             30.3             22.5             14.1     100.0
----------------------------------------------------------------------------------------------------------------
2,500 to 4,999                              33.5             29.4             23.4             13.7     100.0
----------------------------------------------------------------------------------------------------------------
Under 2,500                                 25.3             29.8             26.7             18.2     100.0
----------------------------------------------------------------------------------------------------------------
Source: NFPA Survey of Fire Departments for U.S. Fire Experience, 1998.


                             Age Profile of Firefighters By Size of Community, 1987
----------------------------------------------------------------------------------------------------------------
                                                            Mostly Volunteer Firefighters
                                   -----------------------------------------------------------------------------
         Size of Community              Percent          Percent          Percent          Percent
                                      Firefighters     Firefighters     Firefighters     Firefighters     Total
                                      under Age 30      Age 30-39        Age 40-49      Age 50 and up
----------------------------------------------------------------------------------------------------------------
10,000 to 24,999                             33.0%            33.8%            20.6%            12.6%    100.0%
----------------------------------------------------------------------------------------------------------------
5,000 to 9,999                              35.8             32.4             19.1             12.7     100.0
----------------------------------------------------------------------------------------------------------------
2,500 to 4,999                              34.6             32.5             19.3             13.6     100.0
----------------------------------------------------------------------------------------------------------------
Under 2,500                                 29.7             33.5             20.9             15.9     100.0
----------------------------------------------------------------------------------------------------------------
Source: NFPA Survey of Fire Departments for U.S. Fire Experience, 1987.


    To cope with the dwindling and aging population of volunteer 
emergency responders, some States and many local units of government 
have discovered that providing benefits to volunteer first responders 
helps boost retention and recruitment. Volunteer benefits come in 
various forms. Communities provide length of service award programs 
(LOSAPs, pension-like programs for volunteer first responders), various 
tax and fee reductions, small cash payments for emergency calls 
responded to, reimbursement for expenses incurred, and a variety of 
others ranging from free gym memberships to award ceremonies. The types 
and levels of benefit vary widely by community.
    Some States provide benefits, or at least authorize local units of 
government to provide benefits. Connecticut, New York and Alaska have 
authorized local units of government to provide property tax credits to 
their volunteer first responders. Delaware, Maryland and South Carolina 
offer their volunteers State income tax credits.
    A Department of Labor ruling last year capped the value of benefits 
a first responder can receive each year and still be considered a 
volunteer. The ruling stated that a first responder loses their 
volunteer status if they receive more than 20 percent of what a career 
first responder, working the same number of hours in the same community 
would make in their place. This ruling hasn't affected most 
communities, where benefit levels don't come close to approaching the 
20 percent threshold. However, the ruling has set an upper limit on 
volunteer benefits and some departments have been forced to take steps 
to ensure that their members are in compliance.
    The Federal Government does not provide volunteer first responders 
with any taxable benefits, but the Federal Government does tax the 
benefits provided by State and local units of government. Federal 
taxation of volunteer first responder benefits has several effects. The 
most obvious effect is to reduce the value of the benefit, by reducing 
the take-home income of the individual receiving the benefit, hence 
reducing the incentive that the benefit was intended to provide.
    H.R. 943 excludes from gross income any ``property tax rebate or 
other benefit'' provided by State or local units of government to a 
member of a qualified emergency response organization. Excluding 
property tax rebates from gross income will be particularly beneficial 
in States like mine, where local units of government are allowed to 
offer up to $1,000 in property tax rebates. This type of benefit is 
particularly useful in communities where rising property taxes have 
made living in the community unaffordable to the volunteers that serve 
it. New York and Alaska allow local governments to offer similar 
benefits to their volunteers.
    The ``other benefits'' that are not enumerated in H.R. 943 would 
cover a wide range of benefits that are provided to volunteer emergency 
responders in every State. There are so many different types of 
incentives provided to volunteer emergency responders across the 
country that it would be nearly impossible to list them all. The broad 
language used in H.R. 943 is extremely important so that communities 
will have the flexibility to provide whatever type of benefit they find 
to be most effective as retention and recruitment tools.
    Federal taxation also imposes a significant administrative burden 
on units of government in small, rural communities (which rely heavily 
on volunteer emergency services) that have limited staff to process 
paperwork. Many of these communities have no staff at all and rely on 
marginally compensated elected officials to perform all administrative 
functions. In communities such as these, issuing tax documents and 
maintaining tax records for every member of the volunteer fire 
department can be an overwhelming task.
    In addition to being an administrative burden, Federal taxation of 
benefits provided to volunteer first responders can also be confusing. 
Many communities issue volunteers 1099 tax forms when they should be 
issuing W-2 forms and vice versa. LOSAP's place in the Federal tax 
structure is ambiguous at best, leading to a lack of portability and in 
some cases underfunding of programs. Small communities with severely 
limited resources often find the administrative and legal barriers 
associated with providing benefits to volunteer emergency responders 
prohibitive. By eliminating Federal taxation of these benefits, H.R. 
943 would also make it much easier for small communities to provide 
them.
    The Joint Committee on Taxation estimates that passage of H.R. 943 
would cost the Federal Government $1.58 billion over 10 years. This 
estimate does not take into account the value of volunteer first 
responders in keeping local tax rates down. Communities provide 
benefits to their volunteer first responders as a retention and 
recruitment tool. Ultimately, by providing these benefits and 
maintaining a viable volunteer emergency responder force, communities 
are able to maintain lower local tax rates. Each year, the services 
provided by volunteer emergency responders save State and local 
taxpayers more than $37.2 billion. The tax savings derived from 
volunteer first responders compared to the average year cost incurred 
by passage of H.R. 943 results in a cost to savings ratio of 
approximately 42 cents per $100.

                                Table 3

                                                                 H.R. 943 Cost Estimate
                                                                  [Millions of Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Years
---------------------------------------------------------------------------------------------------------------------------------------------------------
                           2008                             2009    2010    2011    2012    2013    2014    2015    2016    2017    2007-12     2007-17
--------------------------------------------------------------------------------------------------------------------------------------------------------
 -31                                                        -126    -135    -146    -162    -172    -184    -196    -208    -221       -599       -1580
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation Letter to Congressman John Larson dated July 16, 2007.


    The NVFC supports passage of H.R. 943, either as a stand-alone bill 
or as part of a package of multiple tax proposals in one bill. I would 
like to thank the Subcommittees for the opportunity to speak here today 
and would be happy to take any questions at this time.

                                 

    Chairman NEAL. Thank you, Mr. McAuliffe.
    Ms. Perdew.

  STATEMENT OF JESSICA PERDEW, DEPUTY DIRECTOR OF GOVERNMENT 
 RELATIONS, NATIONAL MILITARY FAMILY ASSOCIATION, ALEXANDRIA, 
                            VIRGINIA

    Ms. PERDEW. Chairman Neal, Chairman McDermott, and 
distinguished Members of the Subcommittee, thank you for the 
opportunity to share the tax issues and concerns facing 
military families today. NMFA appreciates the concern for and 
commitment to families evident in the Heroes Earnings 
Assistance and Relief Tax Act of 2007.
    As you know, military compensation is very complex. Many 
servicemembers receive special and incentive pays at different 
times throughout their careers. These temporary increases in 
compensation may actually result in a loss of programs or 
benefits for the families who receive them.
    In other circumstances, a permanent change of station move 
may result in the loss of benefits or programs upon arrival at 
the new duty station. Perhaps the most glaring example of this 
problem is with regard to Supplemental Security Income or SSI.
    Military families that receive SSI to help care for a 
special needs or disabled child often find that a change in 
housing status or a deployment can disqualify the family for 
SSI. While the loss of these payments is certainly an issue, 
SSI is also the gateway to other programs that assist the 
family in caring for that disabled family member.
    I recently spoke with a Navy spouse who had completed a 
government order move. They had five children. One of the 
children was diagnosed with autism. At their former duty 
station, the family received SSI for the autistic child. In 
addition, because the family qualified for SSI, they also had 
access to additional support programs in the local community.
    They were unable to secure government quarters at the new 
duty station, and as a result were collecting Basic Allowance 
for Housing on the local economy. This increase in income 
resulted in their ineligibility for SSI, and as a result, 
ineligibility for Medicaid and other support programs. In 
addition, because they were now receiving BAH, the other 
children in the family were no longer qualified for reduced-
price lunches.
    Military families should not be penalized for being 
deployed to a combat zone or making an ordered permanent change 
of station move. A standardized formula for the treatment of 
military compensation is necessary to ensure that all families 
are eligible for the same benefits regardless of their current 
geographic location. NMFA believes that BAH should be excluded 
from income when calculating eligibility for safety net 
programs such as SSI and reduced or free school lunches.
    Congress has heard and responded to the issue of military 
families who lost eligibility for the Earned Income Tax Credit 
as a result of nontaxable pay in a combat zone. The concern is 
that while there is no immediate end in sight to the current 
deployments, the end of the provision that allows 
servicemembers to count nontaxable pay as earned income for 
EITC purposes is clearly in sight.
    It is imperative that this provision be protected for 
servicemembers repeatedly sent in harm's way. In addition, 
hardship duty pay, imminent danger pay, and other deployment-
related pays should be considered earned income for purposes of 
safety net programs. A family coping with the stresses of 
deployment should also not be faced with the loss of benefits.
    A few years ago, the Military Times newspaper ran a story 
about a Marine staff sergeant, Staff Sergeant Brown, who had 
actually requested to forfeit special pays and allowances that 
would be paid for his upcoming deployment to Kuwait. His 
request was denied. By law, he was told, he had to be paid 
approximately $400 a month in special pays for this deployment.
    Unfortunately, the additional money meant that the Browns 
would lose eligibility for SSI for their disabled child. The 
SSI eligibility was the gateway for a daycare program provided 
by Medi-Cal. These services would have cost the Browns nearly 
$50,000 a year. In addition, Medi-Cal was covering supplies 
that TRICARE did not cover. In total, the Browns estimated that 
they would need about $8,000 in extra income every month to 
make up for the $400 Staff Sergeant Brown would be receiving as 
a result of the deployment.
    The disabled child of a servicemember does not stop being 
disabled just because the servicemember deploys. As a result, 
the services these families need should not stop when the 
servicemember deploys. The treatment of special pays and 
allowances as unearned income is financially devastating to 
special needs families.
    I would also like to take the opportunity to share with you 
some additional provisions that NMFA believes would be 
beneficial to military families.
    Currently, military members are not eligible to participate 
in flexible spending accounts, nor are they permitted to use 
pretax dollars to pay health insurance premiums for TRICARE 
supplements or the DOD-sponsored TRICARE dental plan. NMFA 
advocates extending these benefits to military members.
    Finally, NMFA believes it is time for a coordinated 
national approach to unemployment benefits for military spouses 
who make a permanent station move with their military sponsor. 
While some States have extended unemployment benefits to 
military spouses, others have categorically denied us from the 
benefit. A Federal solution to this problem would ensure 
equitable treatment of all military spouses.
    Military families are very proud of their service. On a 
daily basis, they are shouldering the burdens of family 
stresses, compounded by a high operation tempo and limited 
funding. NMFA believes the opportunity to bring these issues to 
the Subcommittee on behalf of military families is an important 
one. Thank you for your continued concern and support for 
servicemembers and their families.
    [The prepared statement of Ms. Perdew follows:]

  Prepared Statement of Jessica Perdew, Deputy Director of Government
 Relations, National Military Family Association, Alexandria, Virginia

    The National Military Family Association (NMFA) is the only 
national organization whose sole focus is the military family. The 
Association's goal is to influence the development and implementation 
of policies that will improve the lives of those family members. Its 
mission is to serve the families of the seven uniformed services 
through education, information, and advocacy.
    Founded in 1969 as the National Military Wives Association, NMFA is 
a nonprofit 501(c)(3) primarily volunteer organization. NMFA represents 
the interests of family members and survivors of active duty, reserve 
component, and retired personnel of the seven uniformed services: Army, 
Navy, Air Force, Marine Corps, Coast Guard, Public Health Service and 
the National Oceanic and Atmospheric Administration.
    NMFA Representatives in military communities worldwide provide a 
direct link between military families and NMFA staff in the Nation's 
Capital. Representatives are the ``eyes and ears'' of NMFA, bringing 
shared local concerns to national attention.
    NMFA does not have or receive Federal grants or contracts.
    NMFA's website is: http://www.nmfa.org.
    Jessica Perdew joined the National Military Family Association 
Government Relations staff in 2005 as Legislative Administrative 
Assistant. In January 2007 she was selected to serve as Deputy Director 
in the Government Relations Department. In this position, she follows 
issues such as pay and compensation, housing, taxes, family member 
employment, financial literacy, commissary, and exchange as well as 
other issues relevant to the quality of life of the families of the 
seven uniformed services. She is a regular contributor to several 
publications including Military Money and Military Spouse magazines. 
Mrs. Perdew serves on the Military Construction/MWR/Exchanges 
Committee, the Taxes/Social Security Committee and the Committee on 
Military Personnel, Compensation and Commissaries of The Military 
Coalition. In addition she represents military families on the Military 
Saves National Partners Committee.
    A former Marine and a Marine spouse of 14 years, Mrs. Perdew has 
served in various volunteer leadership positions in civilian and 
military community organizations including Key Volunteers, Navy and 
Marine Corps Relief Society, Volunteer Income Tax Assistance (VITA), 
and Marine Spouse Clubs. She is a graduate of the University of 
Michigan in Ann Arbor with a Bachelor of Science in Physics and is 
currently pursuing a second Bachelors degree in Accounting through the 
University of Maryland.
    In addition to her work at NMFA, Mrs. Perdew is a past President of 
the Marine Officers' Spouses' Club of Washington D.C. and is currently 
serving as the Coordinator of the Joint Armed Forces Officers Wives 
Luncheon Committee. She is also a volunteer in the youth office at St. 
Mark Church in Vienna, Virginia. Mrs. Perdew and her husband, 
Lieutenant Colonel Jason Perdew, reside in Vienna, Virginia with their 
four children.

                               __________

    Representative Neal, Representative McDermott, and distinguished 
Members of the Subcommittees, the National Military Family Association 
(NMFA) would like to thank you for the opportunity to present testimony 
today on some of the issues confronting military families with regard 
to taxation. The package of provisions being discussed in the ``Heroes 
Earnings Assistance and Relief Tax Act of 2007'' contains some very 
exciting benefits for military members and their families. I would like 
to discuss a few specific provisions today.
Special Tax Provisions for Active Duty Service
    Over the past 6 years of the Global War on Terror many laudable tax 
provisions targeting military members have been enacted. Unfortunately, 
many of these provisions were enacted with sunset dates and are due to 
expire at a time when servicemembers want and need them to continue. 
One such provision is the ability to treat nontaxable income earned in 
a combat zone as income for the purpose of Earned Income Tax Credit 
(EITC) qualification.
    A few years ago many of our junior enlisted and officer members 
were suffering a net loss in tax benefits while deployed to a combat 
zone despite the allowed tax exclusions on their income. This seeming 
paradox resulted from an overall decrease in earned income resulting in 
the decrease in or disqualification for the Earned Income Tax Credit. 
Congress recognized the importance of this credit to our military 
families and took action to ensure they did not lose eligibility due to 
military orders deploying them to a combat zone. Making this provision 
permanent will ensure that our lowest income servicemembers and their 
families are eligible for and can maximize the benefit of these 
important credits while serving in a combat zone.
    Other families are finding that the receipt of combat or hazardous 
duty compensation reduces or makes them ineligible for Supplemental 
Security Income (SSI) payments. Currently military families who rely 
upon SSI to meet living expenses associated with a disability are 
finding that a deployment can significantly impact their financial 
stability in a multitude of ways. The receipt of Hardship Duty Location 
Pay (HDL-P), Imminent Danger Pay (IDP), or other deployment-related 
pays can disqualify otherwise qualified families for SSI. Not only does 
the affected family lose the SSI payment, they also become ineligible 
for other programs for which SSI is the gateway to qualification such 
as Medicaid. Classifying these pays as earned income for purpose of SSI 
qualification would ensure that military families in these 
circumstances aren't arbitrarily penalized for the deployment of the 
servicemember.
    NMFA has heard from many families about the difficulty of balancing 
financial obligations when the servicemember is deployed. Families 
commit to financial obligations based upon their regular income, which 
may include SSI. When the servicemember is deployed, the family is 
still obligated to pay the mortgage, utilities, car payment, and 
college tuition even if their income decreases. Disabled family members 
do not suddenly lose their disability when a servicemember deploys. The 
child who requires special daycare still requires special daycare. The 
blind child does not suddenly regain his or her sight. These families 
are not only coping with a disabled child, they are also now dealing 
with the additional impacts of a deployment and suddenly becoming a 
single parent family until the servicemember returns. It is imperative 
that disability payments continue for families coping with deployment. 
Legislation is needed to ensure continuity of these benefits to all 
families.
    The call to active duty service and deployment can have 
catastrophic impact on the monthly budget of a family, especially Guard 
and Reserve families. Many families have used their ``emergency fund'' 
to cope with the additional financial demands of previous deployments. 
As a result many families are finding subsequent deployments more 
financially taxing. The provision that permits active duty members to 
make penalty free withdrawals from retirement plans may be the only 
resource remaining for some families. While withdrawing from a 
retirement account will obviously impact future retirement plans, such 
withdrawals may be the only means of maintaining a family's financial 
solvency.
    NMFA believes there is also room for additional legislative 
provisions for servicemembers and families coping with deployment. NMFA 
suggests Congress pass legislation to:

      Exclude all employment taxes, rather than just FICA for 
servicemembers in a qualifying combat zone.
      Increase the standard deduction for servicemembers who 
received tax free pay as a result of service in a combat zone during 
the tax year.
      Extend tax exemptions offered to servicemembers in combat 
zones to military spouses of those servicemembers.
      Provide employers with tax incentives to continue benefit 
programs for families of Guard and Reserve servicemembers called to 
active duty.

    All servicemembers, regardless of deployment status, would benefit 
from the ability to pay health insurance premiums for TRICARE 
supplements or the DoD sponsored TRICARE dental plan with pre-tax 
dollars. Also, servicemembers are currently unable to participate in 
flexible spending accounts that would permit them to pay health care 
and child care expenses with pre-tax dollars. Both of these benefits 
are routinely offered to civilian employees and Federal civilian 
employees. Military spouses are called upon to regularly relocate as 
servicemembers are transferred from duty station to duty station. Yet, 
in many States military spouses are not eligible for unemployment 
compensation despite having worked at the previous duty station. 
Standardizing the rules for unemployment compensation for military 
spouses would ensure that they are not arbitrarily penalized for moving 
with their military sponsor. NMFA believes it is time to extend those 
benefits to active duty personnel and their families.
    NMFA appreciates the efforts of Congress to provide beneficial tax 
treatment due to the special circumstances surrounding military service 
in a time of conflict. We believe that it is now time to make these 
provisions permanent to ensure there is no loss of benefit as 
servicemembers continue to wage the Global War on Terror.
Military Allowances and Safety Net Programs
    In congressional testimony since 2003, NMFA has raised a 
longstanding frustration for military families: The confusion involved 
in how and when military allowances are counted to determine 
eligibility for military and civilian programs. NMFA again reinforces 
the need for Members of Congress, as well as State officials, to assist 
in bringing a sense of order to how military allowances are counted for 
Federal and State programs. We ask you to help ensure equitable access 
to these safety net services and protect families against disruptions 
in benefit eligibility caused by the receipt of deployment pays. No 
family should have to face the prospect of losing valuable benefits for 
a disabled child because a servicemember has received deployment orders 
or because they have relocated to a new duty station.
    Families living off the installation are often there only because 
of the non-availability of on-base housing, yet endure higher expenses 
than families living on an installation. Ideally, therefore, NMFA 
believes tax free allowances such as BAH should not be counted under 
any safety net program, which is how they are now treated in 
determining eligibility for the Earned Income Tax Credit (EITC). NMFA 
understands this could increase the number of military families 
eligible for some of these programs, but believes this increase is 
justified given the need for equitable treatment of all servicemembers, 
as well as the loss of spouse income due to military relocations and 
high operations tempo.
    Inconsistent treatment of military allowances in determining 
eligibility for safety net programs creates confusion and can exact a 
financial penalty on military families. A start in correcting this 
inequity would be to adopt a common standard in how BAH should be 
counted in eligibility formulas and to ensure that the receipt of 
deployment-related allowances do not cause military family members to 
become ineligible for support services for which they would otherwise 
be eligible.
Tax Treatment for Wounded and Surviving Families
    NMFA recognizes and appreciates the legislation that has been 
passed in support of survivors since the beginning of the Global War on 
Terror. One issue that has been previously overlooked in legislation is 
the ability to invest death gratuities in tax favored accounts. For 
survivors, the ability to contribute up to the entire amount of the 
death gratuity to a tax favored account allows them the opportunity to 
invest this payment until it is needed to cover higher education costs 
without being penalized by a significant tax expense when withdrawn. 
This measure is one more way that we can ensure that the families of 
those patriots who have made the ultimate sacrifice can achieve their 
dreams and goals without the threat of taxes eroding the value of their 
educational funding investments.
    Finally, those veterans who have patiently waited years for a 
Department of Veterans Affairs (VA) Disability Determination should be 
afforded the opportunity to amend a tax return and obtain a refund of 
taxes that were overpaid during the time that the VA was adjudicating 
the case. The delay in determinations is through no fault of the 
individual veteran and they should not be asked to forego refunds 
simply because the statute of limitations on amending a return has 
passed.
    NMFA appreciates your focus on and commitment to military members 
and their families. Financial readiness has a direct impact on military 
readiness; the tax provisions discussed here have the potential to 
improve financial readiness of military members.

                                 

    Chairman NEAL. Thank you, Ms. Perdew.
    Ms. LaRock.

  STATEMENT OF MICHELLE D. LAROCK, DEPUTY DIRECTOR OF PROGRAM 
DEVELOPMENT, DIVISION OF VETERANS' AFFAIRS, STATE OF NEW YORK, 
                        ALBANY, NEW YORK

    Ms. LAROCK. Thank you. Chairman Neal, Chairman McDermott, 
Ranking Members English and Weller, and Members of the Ways and 
Means Subcommittees, my name is Michelle LaRock and I am Deputy 
Director for Program Development of the New York State Division 
of Veterans' Affairs. I am pleased to be here today to discuss 
Section 202 of the draft proposal before you, which would 
ensure that recipients of State annuities for blinded veterans 
are not penalized by the loss of their Supplemental Security 
Income benefits.
    Section 202 of this proposal is modeled on legislation, 
H.R. 649, introduced by New York Congressman Tom Reynolds, who 
has advocated this important change since the year 2000, and I 
appreciate his facilitating my appearance at this morning's 
hearing.
    New York is one of four States that currently provide a 
modest annuity to blinded veterans. The other States that offer 
similar annuities are Massachusetts, Pennsylvania, and New 
Jersey, States that are also well represented by Members of 
this Committee. Let me begin briefly by describing New York's 
annuity program and then discuss why current Federal SSI rules 
present serious challenges both to annuitants and to the 
Division of Veterans' Affairs in our administration of the 
annuity program.
    Under New York's program, the State makes an annuity 
payment to blinded veterans or their un-remarried surviving 
spouses. The annuity has been in existence since shortly after 
World War I, and it is currently at a rate of $1,103.88 per 
year. There are approximately 3,100 veterans and 1,400 spouses 
currently receiving these benefits.
    Unfortunately, under current Federal law, SSI benefits for 
which blinded veterans may otherwise be eligible are reduced 
simply by virtue of their receiving these modest State 
annuities. This quirk in Federal law poses significant 
challenges both to annuitants and to administrators of these 
State programs.
    With respect to the annuitants themselves, it seems unfair 
that these modest State annuities would reduce Federal SSI 
payments to blind veterans who are struggling economically, 
especially given that our annuity program predates SSI and was 
never intended to replace Federal benefits.
    Instead of making the lives of eligible veterans a little 
easier, these annuities have often become significant hardships 
for them when offsetting their Federal benefits. This is an 
obvious inequity, and it is a welcome development to see that 
Congressman Reynolds' proposal to correct this problem has been 
included in the draft bill under consideration by the 
Committee.
    These Federal rules governing SSI payments have also 
presented difficulties for the Division of Veterans' Affairs in 
the administration of our blind annuity program. For an unknown 
number of years, our annuities have not been paid as single 
annual payments, but rather as 12 monthly payments. The 
rationale behind this payment schedule is the necessity to 
minimize the impact a lump sum payment would have on 
annuitants' Federal benefits, such as SSI, that are calculated 
on a monthly basis.
    Unfortunately, this has resulted in the annuity being 
treated as a payroll process, except that no deductions are 
made and it is run monthly. This generates about 54,000 checks 
over the course of 1 year, which is the payroll equivalent of a 
2,000-person agency, all managed part-time by a Secretary II in 
the Division of Veterans' Affairs and a payroll clerk in the 
Office of General Services.
    If State annuities to blind veterans were disregarded in 
calculating Federal SSI benefits, the Division of Veterans' 
Affairs could explore ways to simplify and improve our 
administration of the annuity program and make it more 
effective for our State's blinded veterans.
    In sum, the interplay between current Federal law and our 
State program has made something as simple as paying $1,103.88 
per year to blind New York veterans or his or her surviving 
spouse unbelievably complicated and difficult, not only for the 
recipients but also for the State.
    For the above-mentioned reasons, the New York State 
Division of Veterans' Affairs enthusiastically supports the 
legislative change made in Section 202 of this proposal, and we 
thank Congressman Reynolds and other Members of this Committee 
for their efforts to address this important issue.
    I appreciate the opportunity to present the views of the 
Division of Veterans' Affairs, and am prepared to answer any 
questions Members of the Subcommittees may have. Thank you.
    [The prepared statement of Ms. LaRock follows:]

               Prepared Statement of Michelle D. LaRock,
 Deputy Director of Program Development, Division of Veterans' Affairs,
                  State of New York, Albany, New York

    Chairman Neal, Chairman McDermott, Ranking Members English and 
Weller, and Members of the Ways and Means Committee, my name is 
Michelle LaRock, and I am Deputy Director of the New York State 
Division of Veterans' Affairs. I am pleased to be here today to discuss 
Section 202 of the draft proposal before you, which would ensure that 
recipients of State annuities for blinded veterans are not penalized by 
the loss of their Federal Supplemental Security Income (SSI) benefits. 
Section 202 of this proposal is modeled on legislation, H.R. 649, 
introduced by New York Congressman Tom Reynolds, who has advocated this 
important change since the year 2000, and I appreciate his facilitating 
my appearance at this morning's hearing.
    New York is one of four States that currently provide a modest 
annuity to blinded veterans. The other States that offer similar 
annuities are Massachusetts, Pennsylvania, and New Jersey, States that 
are also well represented by Members of this Committee. Let me begin by 
briefly describing New York's annuity program and its eligibility 
requirements and then discuss why current Federal SSI rules present 
serious challenges both to annuitants and to the Division of Veterans' 
Affairs in our administration of the annuity program.
Description of New York State's Blinded Veterans Annuity Program
    Under New York's program, the State makes an annuity payment to 
blinded veterans or to their un-remarried surviving spouses. The 
annuity has been in existence since shortly after World War I, 
initially at an annualized rate of $500 and only for blinded veterans 
themselves. In 1999, the amount was increased to $1,000 per year, and 
in 2000 un-remarried surviving spouses were added as eligible 
annuitants. In 2004, a provision to index the amount of the annuity by 
the annual Federal inflation rate was added. The current annuity is 
$1,103.88 per year.
    Prior to 1999, there were approximately 1,100 veterans receiving 
the annuity. Following the increase in the amount of the annuity and 
the addition of many more surviving spouses, that number has risen to 
include approximately 3,100 veterans and 1,400 spouses. Most of these 
recipients are elderly--only 18 of the 4,500 recipients are under the 
age of 50.
Eligibility Requirements
    In New York, eligible veterans are those who served on active duty 
in the armed forces of the United States during specified wartime 
periods and who were discharged or released under conditions other than 
dishonorable. Annuitants must meet the New York State standards of 
legal blindness and must continue to be residents of, and continuously 
domiciled in, New York State. In general, the veteran must have had 90 
days of active duty service for nontraining purposes. Less than 90 days 
is acceptable, however, if the veteran was discharged for a service-
connected disability.
Current Federal Law Reduces Annuitants' SSI Benefits
    Unfortunately, under current Federal law, SSI benefits for which 
blinded veterans may otherwise be eligible are reduced simply by virtue 
of their receiving these modest State annuities. This quirk in Federal 
law poses significant challenges both to annuitants and to 
administrators of these State programs.
    With respect to the annuitants themselves, it seems unfair that 
these modest State annuities would reduce Federal SSI payments to blind 
veterans who are struggling economically, especially given that our 
annuity program predates SSI and was never intended to replace Federal 
benefits. Instead of making the lives of eligible veterans a little 
easier, these annuities have often become significant hardships for 
them when offsetting their Federal benefits. This is an obvious 
inequity, and it is a welcome development to see that Congressman 
Reynolds' proposal to correct this problem has been included in the 
draft bill under consideration by the Committee.
    These Federal rules governing SSI payments have also presented 
difficulties for the Division of Veterans' Affairs in the 
administration of our blind annuity program. For an unknown number of 
years, our annuities have not been paid as single annual payments, but 
rather as 12 monthly payments. The rationale behind this payment 
schedule is the necessity to minimize the impact a lump sum payment 
would have on annuitants' Federal benefits, such as SSI, that are 
calculated on a monthly basis. Unfortunately, this has resulted in the 
annuity being treated as a payroll process, except that no deductions 
are made and it is run monthly. This generates about 54,000 checks over 
the course of 1 year, which is the payroll equivalent of a 2,000-person 
agency--all managed part-time by a Secretary II in the Division of 
Veterans' Affairs and a payroll clerk in the Office of General 
Services. If State annuities to blind veterans were disregarded in 
calculating Federal SSI benefits, the Division of Veterans' Affairs 
could explore ways to simplify and improve our administration of the 
annuity program to make it more effective for our State's blinded 
veterans.
    In sum, the interplay between current Federal law and our State 
program has made something as simple as paying $1,103.88 per year to a 
blind New York veteran or his or her surviving spouse unbelievably 
complicated and difficult, not only for the recipients but also for the 
State.
Conclusion
    For the above-mentioned reasons, the New York State Division of 
Veterans' Affairs enthusiastically supports the legislative change made 
in Section 202 of this proposal, and we thank Congressman Reynolds and 
other Members of this Committee for their efforts to address this 
important issue. I appreciate the opportunity to present the views of 
the Division of Veterans' Affairs and am prepared to answer any 
questions Members of the Subcommittees may have. Thank you.

                                 

    Chairman NEAL. Thank you, Ms. LaRock.
    Mr. Downing, I appreciate your comments on the need for 
affordable housing for veterans, and perhaps the successful 
low-income housing tax credit program could be utilized for 
this need as well. You stated that your program creates savings 
accounts for veterans so that someday they can own their own 
home.
    Under the current draft bill we are considering, one of the 
provisions would make permanent a temporary provision that 
waives the first-time homebuyer requirement for veterans under 
a Qualified Mortgage Bond program, providing an opportunity for 
veterans to access lower-cost financing.
    Does Massachusetts do any outreach work to veterans under 
the Qualified Mortgage Bond program?
    Mr. DOWNING. Not that I'm aware of, sir.
    Chairman NEAL. Do you want to expound on that?
    Mr. DOWNING. The issue has been that in the Massachusetts 
Department of Veterans Services, they have never had anything 
whose full-time position was just housing around the issue of 
housing for veterans. They are currently funding and developing 
a job position to do that, and I think as a result of that, the 
programs that might have benefited veterans have never come 
into existence.
    Chairman NEAL. And Ms. LaRock, do you expect an uptick in 
recipients of veterans services in your special annuity program 
with the increase in the number of veterans over the last few 
years?
    Ms. LAROCK. Once the State started allowing spouses, that 
increased. And once the State indexed the annuity to keep with 
the Federal cost of living, that also increased the amount of 
annuitants in the program.
    I am not sure if they knew that the blind annuity would not 
be countable income, that that would make them come out in 
droves. I think they still come out to get their annuity. But 
it just makes it difficult for them to have their Federal 
benefits offset if they do receive SSI.
    Chairman NEAL. Thank you. I would like now to recognize Mr. 
McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Listening to you talk about all the health care problems 
reminds me, we are going to have a hearing in my Subcommittee 
on the gaps in SSI and how they are created because it is 
pretty clear to me that we really need a universal health care 
system so that people don't drop between TRICARE and Medicaid 
and all the places where, when there are shifts in people's 
lives, what happens to their health care.
    I am afraid to ask, Ms. Johnson: What happened to your 
health care coverage when your husband was killed?
    Ms. JOHNSON. Well, fortunately I was working at the time, 
so I had health care also for our family. And, of course, while 
he was on active duty, we had the military TRICARE. Because he 
was killed, the military will take care of the family with 
TRICARE.
    Mr. MCDERMOTT. So TRICARE goes from now until your daughter 
is how old?
    Ms. JOHNSON. There is a period that the family does not 
have to pay anything, and then the family does have to pay a 
portion. I have not come to that point yet to know how much 
that is.
    Mr. MCDERMOTT. Tell me about what happened in the State 
legislature when you went down there to try and get a fix from 
the State legislature around the pension system.
    Ms. JOHNSON. I have to let you know that everyone that I 
talked to was very supportive on a personal level. They could 
not do enough for me because they understood the situation.
    Mr. MCDERMOTT. Did they change the law?
    Ms. JOHNSON. It was the wording and how things were done. 
They would tell me their hands are tied on what happened with 
that. Again, he was being treated as though he quit, as though 
he wasn't employed any longer, where I believe that if he had 
been killed here in the States at the time while he was 
employed, there would have been just a reduction in those 
benefits; where in this case they were removing all of the 
matching, where if he had been killed here, there still would 
have been the matching funds. It just would have been a penalty 
for early retirement.
    Mr. MCDERMOTT. Does anyone here on the panel know how many 
States treat a service person as terminating their employment 
when they go on active duty? Is that a universal thing across 
the country? Does anybody know that?
    Ms. JOHNSON. I don't think it has happened enough, so I 
don't think people--they haven't looked at it.
    Ms. PERDEW. Mr. Chairman, it is not just State governments. 
Also, private employers who have pension plans, when you are a 
Guardsman or a Reservist and you activate, if you are killed in 
the line of duty during that activation, you are considered a 
terminated employee because you never came back to the employer 
as an employee after your tour of duty.
    Mr. MCDERMOTT. So that you do not then participate in the 
company--in the private plans, either?
    Ms. PERDEW. Correct. They would have the same experience, 
whereas they would be given back what they had paid into the 
program, but not treated as a pensionholder.
    Mr. MCDERMOTT. And I hope that, Ms. Johnson, you will send 
it to us. But if anybody else has access to what the difference 
is for a--your husband was what, 40----
    Ms. JOHNSON. Forty-four-years-old.
    Mr. MCDERMOTT. And he had been in the law enforcement 
system----
    Ms. JOHNSON. Fifteen years. Fifteen years.
    Mr. MCDERMOTT [continuing]. For 15 years. So he had some 
kind of actuarial--you could have received an actuarial reduced 
pension.
    Ms. JOHNSON. Right. And even at State level, it is not 
where it really needs to be. For instance, I was not given the 
option to keep the money in there so to reduce that penalty. Do 
you understand what I am saying? That if I could have kept it 
in their until, you know, his age that he would have been at 
retirement normally, if you did that, there would be a 
reduction of that penalty. I was not given that choice.
    Mr. MCDERMOTT. So you were just given----
    Ms. JOHNSON. So I had to take a full penalty, as though he 
retired at age 44.
    Mr. MCDERMOTT. And then were you taxed on that money as 
well?
    Ms. JOHNSON. I, of course, knowing it was a pension, I have 
rolled it over into a pension account. I guess that would be an 
IRA. Of course, I will be.
    Mr. MCDERMOTT. Ultimately.
    Ms. JOHNSON. But, I mean, that is what--I don't believe 
that the families necessarily--I mean, some of them may need it 
right away. But it was meant to be a pension, and I had no 
problem keeping it that way. And I would have loved to have 
been able to keep it in there to reduce those penalties, but I 
was not given that opportunity.
    Mr. MCDERMOTT. Thank you very much. Thank you for coming 
and testifying here today. You did a good job.
    Ms. JOHNSON. Thank you.
    Chairman NEAL. Mr. Reynolds.
    Mr. REYNOLDS. I thank the Chairman. And I thank this panel. 
I think it has been both helpful on the legislation that our 
two Chairs and Ranking Members have hosted this hearing on, but 
also, as Chairman McDermott and I were walking to the Capitol, 
it opens up other things where your testimony helps us think 
about where we can maybe do other areas of assistance as 
unintended consequences have occurred as we are at war and we 
have had our Reserve and Guardsmen on active duty service.
    And I also saw some of that as I was on an Air Force base 
this weekend in my district, and talking to Reservists about 
some peculiar problems they are now experiencing that we just 
need to work through. So I again appreciate the testimony here, 
and appreciate the opportunity with this hearing both for 
legislation before us, but where it is leading us to look at 
some other things.
    Chairman NEAL. Thank you, Mr. Reynolds.
    Mr. Larson is recognized.
    Mr. LARSON. Thank you, Mr. Chairman. And let me echo the 
sentiments of the Members on the Subcommittee, first and 
foremost to you and Mr. McDermott and the Ranking Members for 
holding this hearing, and Mr. Rangel for putting this 
legislation forward. Certainly the testimony here today has 
been compelling, if not poignant and emotional.
    And as was said by Mr. Reynolds, I think more often than 
not, when we get to listen to our constituents, we get to learn 
an awful lot more about how we can more effectively apply the 
laws. That was the case in Connecticut, which passed a law in 
1999 that provided relief to volunteers and local 
municipalities that allowed them to provide a rebate to 
volunteers. And if we learned anything after the events of 
September 11th, it was how important and how valuable those 
volunteers are, those frontline defenders, as I said.
    I have a question for Mr. McAuliffe because I do think it 
is important. Is the state of volunteerism, and specifically in 
the case of firefighters, and so important, I believe, in your 
statement you said something like it saves the taxpayer $37 
billion--what has caused this stress? Is there some--what do 
you attribute to the lack of volunteerism, et cetera, not only 
in Connecticut, but perhaps across the Nation in your 
association?
    Mr. MCAULIFFE. I think there is a broad series of events 
that have caused the diminishment of volunteers. However, I can 
focus on a couple of points. And one is that the demands of a 
volunteer have substantially changed since I went into the 
department years ago.
    We did on-the-job training. Now there are more safety 
features, more specialized training that our people have to go 
through to maintain that professional level of balance to do 
their job. So the time commitment becomes much longer than what 
it was years ago.
    The other thing I see is a diminishment in the volunteers 
out there as the demographics of communities. And if I might 
point out that Wethersfield, the town I come from, was once a 
suburban community. As time went along, it became an urban 
community. And those firefighters or volunteer firefighters 
that we had during the daytime who were the farmers, those 
farms are gone. So we have to find people who we can solicit or 
encourage to join the volunteer fire service to pick up that 
slack.
    However, I will say that in looking at the $1,000 tax 
deduction that the State has allowed, I see that there is a 
slowing down of the number of people exiting from the fire 
service, and I think that is definitely a good sign. Hopefully, 
it will turn around even further and come back to where, when I 
went in the department, you had to be put in queue to get into 
the department. Now, if you can capture a warm body and get 
them to join, you certainly do that.
    Mr. LARSON. Thank you, Mr. McAuliffe.
    Chairman NEAL. Are there any other questions of our 
panelists?
    [No response.]
    Chairman NEAL. Well, I want to thank you personally as well 
as professionally. I think that you are reflective of hometown 
America and the real problems that our veterans and others have 
every single day. And I think not only is the testimony you 
have offered instructive, but I think it is testimony that you 
can see Republicans and Democrats both are embracing.
    And I am hopeful that the full Committee will move on with 
some of the suggestions that you have offered, and that we will 
get a product that will pass the House of Representatives. And 
I am pretty confident that in some form, that will happen.
    So let me thank you for your testimony. The record will 
remain open for a short period of time to accommodate any 
written followup that you might like to offer.
    Mr. MCDERMOTT. Mr. Chairman?
    Chairman NEAL. Mr. McDermott.
    Mr. MCDERMOTT. Mr. Chairman, I would like to have unanimous 
consent to put into the record a letter from the AmeriCorps 
program in Washington State that has part of the documentation 
of why we need to deal with AmeriCorps.
    Chairman NEAL. Without objection, that testimony will be 
accepted.
    If there is no further comment, the Chair will declare that 
this hearing is adjourned.
    [Whereupon, at 12:58 p.m., the Subcommittees were 
adjourned.]
    [Submissions for the Record follow:]

                                                STATE OF CALIFORNIA
                                     DEPARTMENT OF VETERANS AFFAIRS
                                   FARM AND HOME PURCHASES DIVISION
                                  Sacramento, California 94295-0001
                                                   October 29, 2007

The Honorable Charles B. Rangel
Chairman
House Ways and Means Committee
1002 Longworth HOB
Washington, DC 20515

Dear Chairman Rangel:

    Thank you for helping California's veterans fulfill their dreams of 
homeownership by including the mortgage bond provisions of H.R. 551 in 
the Heroes Earnings Assistance and Relief Tax Act of 2007. The 
California Department of Veterans Affairs strongly supports your bill, 
which will allow California's recent war veterans to participate in our 
CalVet Home Loan program.
    The CalVet Home Loan program has helped more than 420,000 veterans 
experience the American dream of homeownership. Since 1922, California 
has offered low-interest home loans to veterans in appreciation of 
their service to the Nation primarily through the sale of voter 
approved, tax-exempt Qualified Veterans Mortgage Bonds and to a smaller 
extent through Qualified Mortgage Bonds. The States of Alaska, Oregon, 
Texas and Wisconsin operate similar Qualified Veterans Mortgage Bond 
programs, and any State can use Qualified Mortgage Bond funds for 
housing programs.
    Over 2.2 million veterans and 200,000 servicemen and women reside 
in California. Enactment of the proposed bill will help meet the demand 
for low-cost loans in California's high-cost market, and ensure that 
those Americans who served in the Persian Gulf War, Somalia, Grenada, 
Panama, Kosovo, Bosnia, Afghanistan and Iraq can enjoy the same level 
of benefits that have been granted to their fathers and grandfathers 
who served in World War II, Korea and Vietnam.
    Your leadership and support of the Heroes Earnings Assistance and 
Relief Tax Act of 2007 is very much appreciated by the California 
Department of Veterans Affairs, the many veteran and industry 
organizations that support H.R. 551, and the veterans of California.
                                                 Tom Johnson, FACHE
               Secretary, California Department of Veterans Affairs

                                 

                             Corporation for National and Community
                                                   October 18, 2007
The Honorable Jim McDermott
Chairman
Ways and Means Subcommittee on Income Security and Family Support
United States House of Representatives
Washington, DC 20515

Dear Chairman McDermott:

    I am writing to thank you for your leadership in addressing the 
disparate treatment of AmeriCorps participant benefits for purposes of 
disability benefits provided by the Social Security Administration.
    The AmeriCorps program has three components: (1) AmeriCorps VISTA; 
(2) AmeriCorps National Civilian Community Corps; and (3) AmeriCorps 
State/National. All AmeriCorps participants receive a modest living 
allowance during service and a post-service education award upon 
completion. Under current law, payments to AmeriCorps VISTA 
participants may not affect their eligibility for any government 
program, including Supplemental Security Income (SSI) and Social 
Security Disability Insurance (SSDI). At the same time, payments to 
AmeriCorps NCCC and State/National participants may negatively affect 
their eligibility for, or benefit levels under, SSI or SSDI.
    The National and Community Service Act of 1990 calls upon the 
Corporation to promote the inclusion of individuals with disabilities 
in national and community service programs, with specific funding for 
outreach and placement. Individuals with disabilities volunteer for the 
same reasons that anyone else does: To give back to their communities; 
to improve their surroundings; to improve the quality of their lives; 
and to be active and engaged citizens. Some national service 
participants who have disabilities volunteer with organizations that 
serve other individuals with disabilities, while others focus their 
efforts on helping to meet a wide range of critical community needs.
    Through the Corporation's National Service Inclusion Project, we 
work with nonprofit and community-based organizations to develop 
inclusive service environments that are accessible and welcoming and 
that make meaningful service experiences possible.
    Regarding the disparate treatment of AmeriCorps benefits, we have 
consistently heard from many of our State Commissions and grantees, as 
well as the larger disability community, about the difficulties they 
encounter recruiting individuals with disabilities to our programs 
because of the possible threat to their SSI or SSDI benefits. Some 
participants have been caught up in this problem after they have 
already enrolled.
    Thank you very much for your attention to this important issue, and 
for your many years of support of national service. Please do not 
hesitate to call me if I may provide you with additional information or 
contact Kathleen Ott, Director, Government Relations.
    The Office of Management and Budget advises that from the 
standpoint of the Administration's program, there is no objection to 
the transmittal of this letter.

            Sincerely yours,
                                                       David Eisner
                                            Chief Executive Officer

                                 
                     Statement of Jerry Patterson,
    Texas Land Commissioner and Chairman, Texas Veterans Land Board

    Chairman Neal and Chairman McDermott:
    I want to thank you both for allowing me to submit this written 
testimony about the Qualified Veteran Mortgage Bond provision contained 
in the ``HEROES Earnings Assistance and Relief Act of 2007.'' I also 
want to thank Congressman Sam Johnson for requesting that this 
testimony be included in the record.
    Texas has always rewarded those who have fought on her behalf. Over 
the years, Texas gave land because that was all she had. The heirs of 
David Crockett, who was once a member of this body, received 1,280 
acres of land for his honorable service at the Alamo. In 1946, the 
Texas Legislature created the Texas Veterans Land Board (VLB) to make 
loans to returning veterans so they could buy a piece of Texas to farm 
or ranch. Since then, the VLB has served more than 200,000 veterans.
    From the first land loan in 1947, the VLB has grown to provide low 
interest loans for land housing and home improvement. All of the 
programs are conducted at no cost to the taxpayer. The VLB is one of 
two State agencies that completely pay for themselves with the proceeds 
from the programs. In addition to the loan programs, the VLB also 
operates seven long-term, skilled nursing facilities for veterans and 
their spouses, as well as two State veterans cemeteries and is 
currently working on the location of an eighth nursing home and third 
cemetery.
    The inclusion of the Qualified Veteran Mortgage Bond section into 
the HEROES bill will allow California and Texas to have the same 
benefit to serve their veterans as Alaska, Oregon and Wisconsin now do. 
QVMB loans symbolize an important commitment to veterans. Over the past 
several years, we have received a number of resolutions of support from 
veterans groups and those in the housing industry endorsing passage of 
this and similar measures.
    All veterans, regardless of when they served, deserve to be treated 
equally. Passage of this provision will ensure that all benefits 
provided by the Texas Veterans Land Board are administered without bias 
to all eligible veterans. These veterans, who have earned this 
entitlement through their honorable service, will enhance local tax 
bases, stimulate economic growth and strengthen our communities as 
responsible homeowners and taxpayers.
    Veterans are a good credit risk. The default rate--of borrowers who 
cannot afford to keep their homes--averages less than one-half of 1 
percent. That is outstanding compared to the rest of the market, which 
sees default rates in the 7 percent range and higher. Veterans pay 
their bills.
    It is also noteworthy that the Texas Veterans Land Board offers 
additional benefits and discounts on its already low base rate. Veteran 
borrowers with a disability rating of 50 percent or more from the U.S. 
Department of Veterans Affairs (VA) will receive an additional 0.35 
percent rate reduction. We also offer our own version of the 
Servicemember Civil Relief Act of 2003, once known as the Soldiers and 
Sailors Relief Act. If borrowers in the Reserve forces of any branch of 
service or the National Guard are called to active duty, we suspend the 
interest due for the duration of their deployment. The only amount they 
or their spouses have to pay is the principal portion of the payment. 
Once they return home, we give them an additional 90 days before we 
resume the original payment. This gives them an opportunity to get 
settled back into life as it once was. We forgive the interest that we 
suspended during their deployment. We do this because it is the right 
thing to do.
    It is critical to understand that this is not a refinance program, 
it is a home purchase program. With a recent focus on National Guard 
troops and Reservists, the program has recently grown to new heights. 
In 2001, the program made $230 million in loans; in 2002, $320 million; 
in 2003, $532 million; in 2004, $1.012 billion; and in 2005, $859 
million. During this period, the rest of the market for loans was 
diminishing.
    In the 109th Congress, H.R. 4297 was passed granting the States of 
Alaska, Oregon and Wisconsin the ability to do away with the arbitrary 
1977 exclusion date that was in section 143 of the Internal Revenue 
Code. Under the Internal Revenue Code, veterans who entered active 
military service after December 31, 1976, are not eligible for QVMB-
funded home loans. These deserving American men and women should be 
provided the same benefit as those veterans in Alaska, Oregon and 
Wisconsin. Through the passage of H.R. 4297 in the last session, those 
States now have the ability to fund all of their veteran borrowers with 
QVMB funds, thereby reducing the interest rate to all veterans, not 
just one class.
    It is also important to understand that veteran borrowers are 
better served using Qualified Veteran Mortgage Bonds for housing loans. 
The issue is whether or not Qualified Mortgage Bonds (QMBs) are a 
suitable replacement for using Qualified Veterans Mortgage Bonds 
(QVMBs) to fund housing loans to Texas veterans. The answer is: QMBs 
are not a suitable replacement because of the State's allocated Private 
Activity Bond program (PAB) cap and QMB lending requirements.
    The total amount of Texas' private activity cap allocated to 
single-family mortgage revenue bond issuers (i.e., QMB issuers) is only 
about $559 million, and is primarily concentrated on lending to low-
income borrowers. The Texas Veterans Land Board originated over $600 
million in housing loans to Texas veterans in FY07. The total VLB 
housing loan demand surpasses the entire amount of Private Activity 
Bond program cap available for the whole State.
    More specific considerations that are problematic with using QMBs 
instead of QVMBs:

      The Internal Revenue Code, Section 143(d)(1), requires 
that mortgagors borrowing from the proceeds of tax-exempt QMBs should 
not have a present ownership interest in a principal residence at any 
time during the 3-year period immediately before the date of obtaining 
the loan. This is referred to as the ``first-time homebuyer'' 
requirement. The Veterans Housing Assistance program, administered by 
the VLB, is not a first-time homebuyer program. Eligible veterans may 
receive a QVMB-funded home loan with no such first-time homebuyer 
restriction. Using QMB proceeds to fund VLB loans would establish 
restrictions that are not consistent with the tradition of the program 
or the intent of the Texas Legislature and the VLB.
      The purchase price of a residence must not exceed 90 
percent of the average purchase price of all single-family residential 
sales during the last 12 months in the same statistical area as the 
financed property. In 2005, the Texas Legislature authorized the VLB to 
set housing loan limits near the maximum loan amount guaranteed by the 
USDVA (currently $325,000). By using QMB proceeds, it is likely that 
purchase price restrictions would be established that are different 
(and lower) than those already authorized for the VLB by law.
      All of the mortgage loans financed with proceeds of QMBs 
must be made to persons whose family income is 115 percent or less of 
the applicable median family income. Family income and area median 
incomes are determined in accordance with Section 8 regulations under 
the Housing Act of 1937. Currently, the VLB has no income restrictions 
for eligible veterans. Using QMBs for home loans would establish income 
limits that conflict with the tradition of the program and the intent 
of the Texas Legislature and the VLB.

    Restrictions on loans made from the proceeds of QMBs, coupled with 
the very limited amount of Texas PAB cap on single-family mortgage 
revenue bond issuers facing loan demand from low-income borrowers, 
require veterans to borrow QMB money instead of QVMB money. This will 
result in a much smaller number of veterans being able to take 
advantage of the lower mortgage rates associated with loans made from 
the proceeds of tax-exempt bonds.
    California and Texas share a commitment to serve our veterans, 
especially during this time of war. As the 110th Congress continues its 
work, we are asking for your support to end this inequity for our two 
States. Our men and women who have served in such places as Panama, the 
Persian Gulf, Somalia, the Balkans, Kuwait, Afghanistan and Iraq 
deserve our thanks and gratitude for a job well done. By supporting 
QVMB legislation, you will be honoring their service with this small 
act of financial support.
    With the decision on BRAC 2005 realignment, Texas is now 
experiencing major growth in three key areas. El Paso County is home to 
Fort Bliss. With the influx of new units to Fort Bliss, the county's 
population will grow by 18,000-20,000 in the next 48 months. Bell and 
Coryell Counties are home to the Nation's largest military base, Fort 
Hood. Some 20,000 soldiers and their families are moving to the area. 
Bexar County, home to the finest burn care center in the world--Brook 
Army Medical Center, or BAMC--is also in the growth mode. The city of 
San Antonio and surrounding communities are planning for the relocation 
of about 25,000 soldiers and their families to the area.
    I want to thank the Members of the Committee again for allowing me 
to submit testimony on this important program. On behalf of all Texas 
veterans, we appreciate your favorable consideration of this important 
measure.

                                 
              Statement of Lori A. Brown, Military Spouse

    Thank you for your continued support of the members of the military 
and their families. I would like to share with you some of my 
experiences with the SSI program that my son, Hunter, has received SSI 
for 7 years and Dakota for 3 years.
    My husband is active duty and has been in the Marine Corps for 13 
years. We have three children. My two boys are on SSI. Dakota, age 13, 
is diagnosed with Asperger's Syndrome and Hunter, age 7, has cerebral 
palsy and epilepsy.
    We have had many ups and downs with SSI over the years. The worst 
time was when my husband, Steve, went to Iraq for the start of the Iraq 
War and we were told by the local Social Security Office that Hunter 
would be losing his SSI and MediCal. We depended on the SSI payment to 
pay for things that his insurance just did not cover. We would have had 
to come up with about $6,000-$10,000 a month to make up for losing the 
MediCal and SSI. We were very blessed when Congresswoman Davis took up 
our cause and shed light on what was going on and helped to get it 
changed.
    There are still issues with the way that military dependent's SSI 
is figured. There are unfair ``earned and unearned'' labels put on our 
pays. The way the military LES looks, everything is broken down and 
itemized for accounting purposes but civilian's pay stubs are looked at 
as all ``earned'' income. This practice puts us at a great 
disadvantage. All the military families are looking for is equal rules 
for all civilian and military--no better, no worse.
    Many families with special needs family members need to live close 
to a specific hospital or therapy center for their loved ones' well-
being and health. But, under the current law, if they do not live on 
base, the BAH will count as ``unearned'' income and, therefore, they 
lose SSI. This is an issue that needs to get resolved.
    For us personally, we have run into this situation and lost SSI for 
a few months while my husband was in Japan. I needed help in the home 
so I rented a house in town where I would be able to have my sister and 
family live with us to help me out. When we could no longer afford 
Hunter's bills we had to move back on base where I could not have help 
living in my home for more than 30 days.
    Also, BAS is treated as ``unearned'' income as if it is money for 
the family. This money is not for the family, it is for the food for 
the servicemember. It should be counted as ``earned'' income.
    Military Clothing Allowance is another one that is counted as 
``unearned'' income. It is pay to buy uniforms that wear out during the 
year, not for the family. This money is woefully inadequate for this 
purpose. We pay out hundreds of dollars more each year for Steve's 
military needs above and beyond what is given as an allowance.
    Special Pays, such as flight line pay, reenlistment bonuses, 
hazardous duty (non war), or jump pay are all counted as ``unearned'' 
income as well. These are pays that are given to Marines (or other 
branches) in certain jobs that rate an additional pay based on their 
job. This should be counted as ``earned'' income based on the fact it 
is just an extension of their base pay.
    Any monies that are paid out for moving such as money for a DITY 
(Do It Yourself) move is counted as ``unearned'' income. This money is 
used for the servicemember to move themselves and their family to the 
new duty station or into housing.
    I would also like to see that the money that the military member 
puts into their Thrift Savings Plan not be used as a way to disqualify 
a special needs military family member from SSI. Just because families 
have a disabled family member shouldn't mean that they can't save for 
their retirement just like all the other active duty military members.
    Basically, I would like to see the word ``UNEARNED'' removed from 
the figuring process to qualify the disabled military dependent for SSI 
benefits. It is a slap in the face to all that serve this country and 
their families. The term is insulting and says that the Social Security 
Administration and those bodies of government that make the rules do 
not see that our servicemembers work for their money and this is just 
not true. The military and their families give all that is asked of 
them by this country and then they give a little more. We want equal 
rights and considerations in the computations for qualifying for 
government programs such as SSI.
    Thank you for your time and consideration in this matter.

                                                      Lori A. Brown
              Proud wife of GySgt Steven M. Brown (newly promoted!)

                                 
         Statement of Max Stier, Partnership for Public Service

    Chairmen Neal and McDermott, Representatives English and Weller, 
Members of the Subcommittees, thank you very much for the opportunity 
to submit this testimony in support of H.R. 2363, the bipartisan 
Generating Opportunity by Forgiving Educational Debt for Service Act 
(GOFEDS) introduced by Rep. Tim Bishop (D-NY). The language in H.R. 
2363 complements many of the objectives of the Heroes Earnings 
Assistance and Relief Tax Act of 2007 and I believe it would be a 
positive addition to the legislation.
    I am Max Stier, President and CEO of the Partnership for Public 
Service, a nonpartisan, nonprofit organization dedicated to 
revitalizing the Federal Government. We appreciate your consideration 
of Representative Bishop's bill and would like to share our thoughts on 
its impact on both military and civilian employees and the agencies in 
which they serve. We also urge the Subcommittees to consider adopting 
language from the bill when drafting the Heroes Earnings Assistance and 
Relief Tax Act of 2007.
    The Partnership has two principal areas of focus. First, we work to 
inspire a new generation to Federal service. Second, we work with 
government leaders to help transform the business of government so that 
the best and brightest will enter, stay and succeed in meeting the 
challenges of our Nation. Given those objectives, identifying ways to 
attract new talent to Federal service is high on our list of 
priorities. We believe that H.R. 2363 has the potential to make a great 
impact on the government's ability to recruit the highly-skilled 
individuals needed in all branches of our military and our Federal 
civil service while yielding a significant return on investment.
    Our country is facing unprecedented new challenges in a host of 
areas, from protecting our Nation against terrorism, to responding to 
catastrophic natural disasters like that of Hurricane Katrina. It is 
crucial that our armed services and Federal civilian agencies have some 
of our Nation's best and brightest minds to meet these challenges. Yet 
at a time when our need for technically- and intellectually-skilled 
employees is greatest, research indicates young people view the 
nonprofit sector, rather than government, as the best place to build a 
meaningful public service career. Compounding this problem, Partnership 
research finds conclusively that student debt is a growing barrier to 
attracting talented young people to government service. Rising 
education costs are essentially pricing the best and the brightest out 
of public service jobs.
    According to data from the National Center for Education 
Statistics, more than half of full-time undergraduate students rely on 
student loans to finance their education. During the 2003-2004 academic 
year students took out an average of $6,200 in loans. Over a 4-year 
period a student can accumulate over $20,000 in debt. Individuals who 
pursue graduate school have even greater debt. Those completing 
master's degrees average $32,900 in debt. Individuals earning 
doctorates or other advanced degrees can have an average debt as high 
as $125,000.
    H.R. 2363 is a straightforward bill. Under the proposal, any 
student loan repayment made by the Federal Government on behalf of an 
employee will not be taxed as part of that employee's income. The tax 
relief benefits uniformed servicemembers and Federal civil servants. We 
believe H.R. 2363 is a low-cost initiative that will do much to improve 
both the military and Federal Government's ability to recruit and 
retain the right people with the right skills. In addition, educational 
or nonprofit institutions are already able to offer tax-free loan 
repayment benefits to graduates who pursue government or nonprofit 
employment. H.R. 2363 puts the Federal Government's loan repayment 
program on equal footing with the programs offered by these 
institutions.
    Mr. Chairmen, Members of the Subcommittees, we thank you for this 
opportunity to submit our views in strong support of H.R. 2363. We 
encourage the Subcommittees to consider incorporating the GOFEDS 
language as a provision in the Heroes Earnings Assistance and Relief 
Tax Act of 2007 or consider other vehicles to help move this bill 
forward.

                                 

                                     National Multi Housing Council
                                                                and
                                     National Apartment Association
                                                   October 31, 2007

Jim McDermott
Subcommittee on Income Security and Family Support
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Richard E. Neal
Subcommittee on Select Revenue Measures
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman McDermott and Chairman Neal:

    The National Multi Housing Council (NMHC) and the National 
Apartment Association (NAA) are pleased to present this statement to 
the Subcommittee on Income Security and Family Support and the 
Subcommittee on Select Revenue Measures in connection with the joint 
hearing held October 17, 2007, to examine the Heroes Earnings 
Assistance and Relief Tax Act of 2007 (HEART Act). NMHC and NAA 
represent the Nation's leading firms participating in the apartment 
industry. Our combined memberships include apartment owners, 
developers, managers, builders and lenders. NMHC and NAA jointly 
operate a Federal legislative program and provide a unified voice for 
the private apartment industry.
    NMHC/NAA would like to thank you for your leadership in developing 
the HEART Act and for holding the joint hearing on the legislation. As 
the Ways and Means Committee continues to develop this legislation, we 
encourage you to consider including a provision to address the 
treatment of the Basic Allowance for Housing (BAH) that is modeled on 
H.R. 1481, The Military Access to Housing Act of 2007.
    The Military Access to Housing Act of 2007 allows BAH provided to 
servicemembers to be excluded from calculations of income for purposes 
of determining the servicemember's eligibility for various Federal 
rental housing programs, including the Low Income Housing Tax Credit 
program (LIHTC).
    As Members of the Committee are aware, military installations do 
not always possess an adequate supply of military-owned housing to 
provide for the needs of all servicemembers. When the military is 
unable to provide military-owned housing to a servicemember and his or 
her family, the Department of Defense pays a BAH to the servicemember 
to allow him or her to acquire suitable housing in the private market.
    The members of NMHC/NAA are committed to working with local 
communities and the Department of Defense in order to meet this demand 
for private housing. However, in some instances, it may be difficult 
for servicemembers, particularly those with large families, to find 
affordable housing in the private market. This can especially be a 
problem in instances where various base and troop realignments have 
resulted in an influx of personnel to some military installations and 
an adequate supply of affordable housing in the nearby communities has 
not yet developed.
    In July 2006, the General Accountability Office (GAO) released a 
report examining the issue of the exclusion of servicemembers' housing 
allowances from income determinations for various housing programs. 
That report concluded that excluding BAH from eligible income would 
have a significant impact on the ability of many servicemembers to 
qualify for Federal housing programs. The servicemembers most affected 
by such a change, the GAO found, would be the soldiers in the lowest 
pay grades (particularly E-1 through E-4 enlisted personnel) and those 
soldiers with the largest families.
    The GAO report also indicated that excluding BAH from income 
determinations for the LIHTC and tax-exempt multifamily housing bond 
programs could have the effect of stimulating the production of such 
housing. GAO cited some officials representing communities near growing 
installations as indicating that excluding BAH from eligibility 
determinations may make it more likely that programs such as the LIHTC 
could be used as a tool to build more affordable housing for incoming 
soldiers and their families.
    This change in the treatment of BAH is consistent with its status 
as a tax-free benefit and with a change being considered for inclusion 
in the HEART Act that would change the treatment of military allowances 
(including BAH) when calculating SSI program eligibility and benefit 
amounts.
    On behalf of the members of NMHC/NAA, we respectfully request your 
support for this important issue. We appreciate your work in this area 
and look forward to working with you to improve the housing for our 
Nation's military personnel.

            Sincerely,

                                                         Doug Bibby
                                                          President
                                     National Multi Housing Council

                                             Douglas S. Culkin, CAE
                                                          President
                                     National Apartment Association

                                 
                Statement of The Honorable Joe Courtney,
       a Representative in Congress from the State of Connecticut

    Chairman Neal and Chairman McDermott, thank you for the opportunity 
to provide my thoughts today on the Heroes Earnings Assistance and 
Relief Tax Act of 2007. I applaud your Subcommittees for drafting 
legislation to ease the burden on the men and women serving in our 
Nation's armed forces, and their families supporting them here at home.
    In addition, I am grateful that you are considering including 
critical tax assistance for volunteer firefighters, who serve 
selflessly each and every day to protect our families and our 
communities.
    Volunteer firefighters play one of the most critical roles in 
ensuring the safety of communities across eastern Connecticut, which I 
am proud to represent in Congress. In many areas across the region, 
they are the only responders for fire, medical and other emergencies. 
They serve not for financial gain, but out of a sense of duty and 
responsibility to their friends and neighbors. However, like most 
Americans, volunteer firefighters are finding it increasingly difficult 
to find not only the time to serve, but to make ends meet as the 
medical, education and energy costs facing our middle class working 
families continue to increase.
    To address this problem, the Connecticut General Assembly passed a 
law in 1999 which allowed local governments to abate the property taxes 
of any resident who volunteers his or her services as a firefighter. 
However, as cities and towns tried to develop incentives to take 
advantage of this law, the Internal Revenue Service (IRS) ruled in 2002 
that the amount of property tax abated for volunteers was considered 
income subject to Federal taxation.
    Taxing the tax breaks meant to retain and recruit volunteer 
firefighters clearly undermines the purpose of providing incentives for 
individuals to volunteer their time to keep their communities safe. 
Unfortunately, in light of this misguided ruling, many towns were 
forced to repeal their abatement incentives, or prevented from even 
considering such programs.
    I know first hand the chilling effect this ruling had on 
communities in Connecticut looking to implement a volunteer firefighter 
tax incentive program. Prior to being elected to Congress, I served as 
Town Attorney for the Town of Vernon, Connecticut, which has an all 
volunteer fire department. In 2004, the town council began considering 
a tax abatement program for their volunteer firefighters, but was 
forced to drop the plan in light of the IRS ruling. As a result, 
volunteer firefighters in Vernon, and countless other communities 
across eastern Connecticut, are denied critical assistance as they 
serve.
    Sometimes the best thing the Federal Government can do to support 
our State and local governments is to simply get out of their way as 
they find creative and effective solutions to critical challenges 
facing our Nation. This is clearly one of those cases, and I strongly 
believe that we need to change Federal law to exempt local tax 
incentives provided for service as volunteer firefighters from income 
taxes. I am proud to support the Volunteer Responder Incentive 
Protection Act (H.R. 943), introduced by my friend and colleague 
Representative John Larson, which would amend the Tax Code to not only 
protect local tax incentives for volunteer firefighters from income 
taxes, but also other benefits that a local or State government may 
provide for their services.
    For a region like eastern Connecticut, which relies primarily on 
the time and dedication of volunteers to staff its fire departments, 
finding ways to ease the burden on volunteer firefighters is absolutely 
critical. Given all that they do to safeguard our families and 
communities, the very least we can do is make it just a little easier 
for them to pay their bills as they continue to serve. I am proud to 
serve in the Connecticut Congressional Delegation with Representative 
John Larson, who has championed this issue on behalf of volunteers in 
our State, and across the Nation, since 2002. I applaud him for his 
dedication to this cause, and urge you to include the provisions of 
H.R. 943 in the draft legislation before you.
    There is never enough we can do for those who give their time, 
energy and devotion to protecting the lives of others. However, the 
``Heroes Earnings Assistance and Relief Tax Act of 2007'' would help 
ease the financial burdens of those who serve our communities, States 
and our Nation, and I look forward to supporting it once introduced.
    Thank you for the opportunity to discuss this important issue with 
you today.

                                 
                 Statement of the Honorable Tom Davis,
        a Representative in Congress from the State of Virginia

    Mr. Chairmen and Members of the Subcommittees, thank you for 
holding this joint hearing on legislative proposals designed to help 
those who have dedicated their lives to serving our country.
    The Oversight and Government Reform Committee spends considerable 
time and effort identifying ways to recruit and retain a strong Federal 
workforce, especially in light of the pending wave of retirements 
expected to hit the Federal Government in the coming years. The 
legislative proposals I will discuss today would help the Federal 
Government attract the best and the brightest employees this Nation has 
to offer.
    The first bill is H.R. 1110, commonly referred to as ``premium 
conversion.'' I have sponsored this legislation for many Congresses 
now, and it has always enjoyed broad bipartisan support, collecting 340 
cosponsors in the 109th Congress (H.R. 994). The Oversight and 
Government Reform Committee marked up H.R. 1110 in September, and it is 
now pending before this Committee.
    H.R. 1110 has widespread support for good reason. It would end a 
longstanding discrepancy by allowing Federal civilian and military 
retirees to pay their monthly health care premiums using pre-tax 
dollars. Also, it would allow active duty military members to apply a 
pre-tax rebate to the supplemental insurance premiums most purchase to 
cover gaps in TRICARE. This legislation would build upon a provision 
included in the Pension Protection Act of 2006 which allows Federal 
public safety officers a limited premium conversion tax advantage.
    Health care costs in the Federal Employees Health Benefits Program 
have gone up by over 9 percent a year since 1999. H.R. 1110 would 
alleviate these increases by saving retirees nearly $800 annually. To 
those on a fixed income, that amount of money can make a huge 
difference.
    The Federal Government has a long history of treating our active 
employees and retirees the same--providing them equal access to health 
care, for example. Our retirees should have the same ability to pay 
their premiums with pre-tax dollars as current Federal employees, and 
our military personnel should be able to do the same under their 
TRICARE programs.
    I look forward to working with the Subcommittee Chairs this 
Congress to try to get this important legislation enacted into law.
    The second piece of legislation is H.R. 2363, introduced by Rep. 
Tim Bishop (D-NY) and myself, called the Generating Opportunity by 
Forgiving Educational Debt for Service Act of 2007, better known as 
GOFEDS.
    GOFEDS seeks to attract and retain employees who have recently 
completed undergraduate or graduate-level education by allowing them to 
exclude their student loan repayments from gross income.
    The challenges we face--from homeland security to pandemic health 
crises to energy supplies--will require a committed and talented human 
capital pool. But more and more, young Americans are opting for 
employment in the private and nonprofit sectors, leaving the Federal 
Government hard-pressed to attract the right people to the right jobs.
    In a recent report on the need to build expertise in the Federal 
workforce to protect the Nation from bioterrorism, the Partnership for 
Public Service pointed out that bio-defense agencies are finding it 
increasingly difficult to hire employees with the required scientific 
and medical expertise. The overall demand for bio-defense talent will 
continue to rise for the foreseeable future--by as much as 25 percent 
through 2010--while the supply of such talent will decline unless we 
act.
    The GOFEDS Act would improve the effectiveness of the existing loan 
repayment program as a recruitment tool and in turn improve Federal 
programs. While current law allows Federal agencies to repay student 
loans on behalf of employees, up to $10,000 a year with a $60,000 cap, 
the incentive is taxed. Nonprofits and educational institutions offer 
loan repayments which, in contrast, are not counted as taxable income 
for the recipient. H.R. 2363 simply puts the Federal Government on par 
with nonprofits by excluding loan repayment from the employees' taxable 
income.
    I look forward to working with the Ways and Means Committee and 
other interested Members of Congress on these important initiatives so 
that we can better meet the Federal Government's workforce challenges, 
which are so critical to the success of the Federal Government's core 
missions, today and in the future. Thank you.

                                 
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