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Pepperdine University School of Law

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Monday, January 30, 2006

Tax Relief for Reservists

Rand_jpeg Interesting report from The Rand Corporation showing, among othe things, that the tax relief provided to U.S. soldiers was a big factor in the finding that 72% of reservists called to active duty in Iraq increased their take-home pay.  A Wall Street Journal editorial today, Combat Pay, notes:

Approximately half the gains in the net pay increases came from the Combat Zone Tax Exclusion and other tax exemptions that shield soldiers' pay while they serve in harm's way. At least our troops on the battlefield can focus on the enemy, without also worrying about the IRS.

The study is Early Results on Activations and the Earnings of Reservists, by Jacob Alex Klerman, David S. Loughran & Craig Martin.  Here is the abstract:

In conducting the Global War on Terrorism, the Department of Defense (DoD) has relied heavily on the reserve components. A large fraction of the reserve force has been activated at least once since September 11, 2001, and many of these activations have lasted for more than a year. This more intensive use of the Reserves has been accompanied by concerns that many reservists suffer substantial financial losses because of being activated. Some legislative proposals at the federal and state levels would increase compensation of activated reservists to offset these financial losses. This report describes research using a sample of Army and Air Force reservists activated in 2001 and 2002 for the Global War on Terrorism. It combines information on their civilian earnings from Social Security Administration (SSA) data for 2001 with information on military earnings from DoD administrative files to estimate the effect of activation on their earnings. This measure of military earnings includes pays, allowances, and an approximation to the value of the federal tax preference accorded military allowances and military pay received while serving in a combat zone. The results on earnings and activation reported in this document are early and subject to a number of important caveats, but the estimates do imply less prevalent and severe earnings losses among activated reservists than do estimates derived from DoD survey data.

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