Taxing our Armed Forces

By Alfred P. Carlton Jr.,
American Bar Association President

As Americans prepare to express our appreciation to veterans and members of the armed forces this Veterans Day, Congress has before it an important opportunity to honor the dedicated citizens who serve our country around the world. After an election season in which so many politicians spent so much time and so much money proclaiming their support for our men and women in uniform, and with hundreds of thousands of soldiers risking their lives for us every day, the decision to pass the Armed Forces Tax Fairness Act of 2002 should be an easy one.

In 1997 Congress passed the Taxpayer Relief Act. Among its many reforms was a tax break for homeowners. Single taxpayers can now exempt from capital gains tax the first $250,000 of profit from the sale of a home, while married couples filing jointly can exclude up to $500,000. To qualify for this exclusion, taxpayers need only have owned and used the home as their principal residence for two out of the five years prior to its sale. For most Americans, this requirement poses no challenge. For members of the military, however, it’s another story entirely.

As often happens when crafting legislation as complicated and broad in scope as the Taxpayer Relief Act, mistakes were made. One such mistake was the omission of provisions that would enable members of the military the opportunity to enjoy this tax benefit.

When military personnel are deployed, it is often to overseas locations for extended periods of time. Even when deployed to bases within the United States, they are sometimes required to live in government quarters, or need to rent a house other than the one they own in order to meet the logistical requirements of their assigned duties. This lifestyle makes it difficult for many soldiers to live in homes they own for two years in any five-year period. As a result, many cannot take advantage of this tax benefit.

This is not a small problem. Of the 1.4 million members of the armed forces and some 80,000 reservists currently serving on active duty, more than 350,000 are homeowners. Denying them a capital gains tax break provided to all other Americans is unfair. It discourages them from participating in our nation’s prosperity through homeownership, and it discourages other Americans from following in their courageous footsteps. As we honor the immeasurable contributions veterans have made to our nation over the years, we must also consider the ways in which we can make it easier for members of the military to continue to serve. Fixing this mistake is a simple way to do that.

Fortunately, Congress recognizes the importance of this issue and has begun to act. Before recessing for the elections, the House and Senate each passed slightly different versions of the Armed Forces Tax Fairness Act. Five years in the making, this legislation would suspend the five-year time period for military homeowners during periods in which they are stationed to locations away from their principal residences for extended periods. In other words, the requirement would be suspended for service members for time spent posted abroad or far from home.

Unfortunately, however, attempts to reconcile the differences between the bills became bogged down in Congress before the recess. And all the while our soldiers continue to wait.
With Congress returning this week for a lame duck session, lawmakers have a chance to finally finish a job that is nearly done. Congress should take full advantage of this opportunity to honor the commitment and contributions of American military personnel. It should pass the Armed Forces Tax Fairness Act of 2002 and afford our men and women in uniform the same tax benefits other Americans enjoy. As we pause on this Veterans Day to recall those who fought for our way of life, this action can be a small way for the American people to thanks the brave and self-sacrificing members of our military who are the safeguards of our freedoms.

Alfred P. Carlton Jr. is the president of the American Bar Association.