Military Pay: Key Questions and Answers

Military Pay and Benefits: Key Questions and Answers Charles A. Henning Answers Lawrence Kapp Specialist in Military Manpower Policy May 13, 2011Barbara Salazar Torreon Information Research Specialist January 20, 2015 Congressional Research Service 7-5700 www.crs.gov RL33446 CRS Report for Congress Prepared for Members and Committees of Congress Military Pay and Benefits Military Pay: Key Questions and Answers Summary From the earliest days of the republic, America’s Armed Forcesarmed forces have been compensated by military pay, commonly known as “basic pay.”for their services by the federal government. While the original pay structure was quite simple and straightforwardfairly simple, over time a a more complex system of pay, allowances, incentives, and bonuses has evolved. Withcompensation has evolved. Today’s military compensation includes cash payments such as basic pay, special and incentive pays, and various allowances. Servicemembers also receive non-cash benefits such as health care and access to commissaries and recreational facilities, and may eventually qualify for deferred compensation in the form of retired pay and other retirement benefits. This report provides an overview of military compensation generally, but focuses on cash compensation for current servicemembers. Since the advent of the all-volunteer force in 1973, Congress has used military pay and its associated allowances to improve recruiting, retention, and the overall quality of the force. Congress, in the National Defense Authorization Act, typically authorizes military pay adjustments for the coming fiscal year. Today’s ongoing military operations in Iraq and Afghanistan, combined with concern over government spending and the debt ceiling, suggest that further changes in pay, allowances, incentives, and bonuses will continue to receive congressional scrutiny. In the nearly 10 years since the terrorist attacks of September 11, 2001, basic pay has increased nominally by nearly 35% (figure not adjusted for inflation). This figure does not include other increases in allowances, bonuses, or incentives. The cumulative effect is that most analysts now agree that the average annual cost per servicemember exceeds $100,000. Many observers are currently concerned about the cost of recent manpower increases, the impact of personnel costs on the overall defense budget, and the potential decrement to equipment modernization plans caused by the increased pressure of the personnel account. To date, however, it appears that the increasing cost of personnel has not come at the expense of other elements in the defense budget. The issue of pay comparability between military and civilian pay, commonly referred to as the “pay gap,” continues to receive emphasis. Advocates for higher pay have emphasized the sacrifices being made today by the American military, the high personnel tempo and reduced dwell time, the impact on families caused by frequent deployments, and the positive impact that raises have had on recruiting and retention. Others argue that the “pay gap” is an imprecise measurement that does not fully account for other compensation increases in the form of allowances, incentives, and bonuses. Still others believe that the military is already better compensated than their civilian counterparts, especially during this period of high unemployment. The Department of Defense (DOD), on the other hand, bases its recommendations regarding military pay on its own standard for pay comparability. The DOD standard establishes that members should be compensated at the 70th percentile of wages for civilian employees with similar levels of education, age, experience, and responsibility. This report addresses the role of military pay in manning the Armed Forces, the types of pay increases used in the past, recent reforms in managing pay, and the role of the Employment Cost Index in determining basic pay increases. The report also reviews the compensation benefits specifically available to military personnel participating in Operation Iraqi Freedom (OIF)/Operation New Dawn (OND) and Operation Enduring Freedom (OEF). Congressional Research Service Military Pay and Benefits: Key Questions and Answers Contents Introduction ................................................................................................................................1 Key Questions and Answers ........................................................................................................1 1. Why Did the Adequacy of Active Duty Military Pay Become a Major Issue Beginning in the Late 1990s? .............................................................................................1 2. What Kinds of Increases in Military Pay and Benefits Have Been Considered or Used in the Past?................................................................................................................2 3. What is “Pay Table Reform”?............................................................................................3 4. How Are Each Year’s Increases in Military Pay Computed? ..............................................4 Definitions ......................................................................................................................4 Annual Percentage Increases in Military Basic Pay..........................................................5 Annual Increases in Basic Allowances for Housing (BAH) and Subsistence (BAS) ..........................................................................................................................6 5. What Have Been the Annual Percentage Increases in Active Duty Military Basic Pay Since 1993 (FY1994)? What Were Each Year’s Major Executive and Legislative Branch Proposals and Actions on the Annual Percentage Increase in Military Basic Pay?............................................................................................................6 6. Is There a “Pay Gap” Between Military and Civilian Pay, So That Generally Military Pay Is Less than That of Comparable Civilians? If So, What Is the Extent of the “Gap”?.....................................................................................................................8 Measuring and Confirming a “Gap” ................................................................................9 Estimates of a Military-Civilian Pay Gap ...................................................................... 10 If There Is a Pay Gap, Does It Necessarily Matter?........................................................ 11 7. What Benefits Are Specifically Available For Military Personnel Participating in Operation Iraqi Freedom (OIF)/Operation New Dawn (OND) and Operation Enduring Freedom (OEF)? ............................................................................................... 12 Hostile Fire/Imminent Danger Pay ................................................................................ 12 Hardship Duty Pay........................................................................................................ 13 Family Separation Allowance........................................................................................ 13 Per Diem....................................................................................................................... 13 Savings Deposit Program .............................................................................................. 13 Combat Zone Tax Exclusion ......................................................................................... 14 Rest and Recreation (R&R) for Personnel In OIF/OND/OEF......................................... 14 8. What Cash Lump-Sum Death Benefits Are Available to the Survivors of Military Personnel Killed in Iraq or Afghanistan? .......................................................................... 14 Contacts Author Contact Information ...................................................................................................... 15 Congressional Research Service Military Pay and Benefits: Key Questions and Answers Introduction All servicemembers are entitled to one primary form of compensation, which is commonly referred to as “basic pay.”1 The amount of pay received is based on rank (also referred to as Pay Grade) and longevity. Promotions result in increased compensation with additional longevity pay increases occurring every two years on a range of “Under 2” to “Over 38.” In addition to base pay, there are a number of allowances, bonuses, and incentives designed to attract and retain quality personnel with the right skills. Since the advent of the all-volunteer military in 1973 and particularly over the past 10 years, Congress has used military compensation to improve the recruiting, retention, and overall quality of the force. This has been particularly important for the Army, which missed its annual recruiting target of 80,000 by 6,627 soldiers in FY2005 and struggled to meet the same mission requirement in FY2006 and FY2007. In the nearly 10 years since the terrorist attacks of September 11, 2001, basic pay has been nominally increased by nearly 35% (figure not adjusted for inflation). This figure does not include other increases in allowances, bonuses, or incentives. The cumulative effect is that most analysts now agree that the average annual cost per servicemember exceeds $100,000. While these pay increases have been significant, veterans’ support organizations have continued to emphasize the importance of closing the “pay gap” to ensure that servicemembers are compensated at the same level as their civilian counterparts. There is, however, no consensus among analysts on how the pay gap should be defined or measured. This results in multiple options for calculating any pay gap. By one commonly used measure, the FY2011 pay raise will close the pay gap of servicemembers lagging behind civilians to an estimated 2.4%. One of the common concerns expressed today is that recent strength increases in the Army and Marine Corps with the resulting increase in the cost of the personnel account will begin to impact on the equipment modernization plans of the services. Today’s ongoing military operations in Iraq and Afghanistan, combined with concern over government spending and the debt ceiling, suggest that future changes in pay, allowances, incentives, and bonuses will continue to receive congressional scrutiny. Key Questions and Answers 1. Why Did the Adequacy of Active Duty Military Pay Become a Major Issue Beginning in the Late 1990s? Since the end of the draft in 1972-1973, the “adequacy” of military pay has tended to become an issue for Congress for one or both of two reasons: if it appears that 1 Basic pay is monthly compensation that all military personnel in the same pay grade and with the same number of years of service will receive. Congressional Research Service 1 Military Pay and Benefits: Key Questions and Answers • the military services are having trouble recruiting enough new personnel, or keeping sufficient career personnel, of requisite quality; or • the standard of living of career personnel is perceived to be less fair or equitable than that which demographically comparable civilians (in terms of age, education, skills, responsibilities, and similar criteria) can maintain. The first issue is an economic inevitability on at least some occasions. In the absence of a draft, the services must compete in the labor market for new enlistees and—a fact often overlooked— have always had to compete in the labor market for more mature individuals to staff the career force. There are always occasions when unemployment is low, and hence recruiting is more difficult, and others when unemployment is high and military service a more attractive alternative. The second situation, while often triggered by the first, is frequently stated in moral or ethical terms. Proponents of this viewpoint argue that, even if quantitative indexes of recruiting and retention appear to be satisfactory, the crucial character of the military’s mission of national defense, and its acceptance of the professional ethic that places survival below mission accomplishment, demands certain levels of compensation. Beginning in the mid-1990s, several new factors caused recruiting and retention problems severe enough to move Congress once again to deal with this issue. Among the factors cited by analysts were (1) a public impression that the end of the Cold War meant that military service was no longer interesting, relevant, or even viable as a career option; (2) the post-Cold War drawdown in active duty military manpower by 40%, which greatly reduced real and perceived enlistment and career retention opportunities; (3) the 1990s economic expansion, which led to the explosive growth of actual and perceived civilian career options; (4) a rise in civilian consumer living standards against which military families measure their own economic success or failure; (5) concerns over increased family separation due to more operations and training away from home, whether “home” was in the United States or in foreign countries; (6) a decreased propensity for military service among young people for other reasons, such as anti-military parents and educators; (7) skepticism about new missions such as “operations other than war,” “peacekeeping,” or “peace enforcement”; and (8) the availability of government educational assistance from other sources (“the GI Bill without the GI”). 2. What Kinds of Increases in Military Pay and Benefits Have Been Considered or Used in the Past? Many military compensation analysts have strongly criticized across-the-board rather than selective pay raises. They argue that across-the-board increases fail to bring resources to bear where they are most needed. Percentage increases targeted on particular pay grades and number of years of service and special pays and bonuses targeted on particular occupational skills, they suggest, would maximize the recruiting and retention gains for the compensation dollars spent. Across-the-board increases also affect a variety of other costs; retired pay, for instance, is computed as a percentage of basic pay. The services already do a great deal of such targeting, having maintained a large system of special pays and bonuses since the end of conscription over 35 years ago. Personnel managers report no indication that such targeted compensation has had the deleterious effects on morale and cohesion that some had feared. Across-the-board pay increases, however, are believed by many to have the advantages of simplicity, visibility, and equity. If everyone gets a similar percentage increase, nobody can feel, or can claim, that he or she has been left out. It also shows up immediately, in Congressional Research Service 2 Military Pay and Benefits: Key Questions and Answers the person’s next paycheck, rather than months or years later when a particular individual is next eligible for a lump sum special pay or bonus (some special pays and bonuses are paid monthly or biweekly, as part of regular pay). It is likely that, as in the past, overall increases in military cash compensation over the next several years will combine both across-the-board and targeted increases. Both of these increases, because of their broad appeal, may well be sound approaches to improving recruiting and retention as much as possible. In addition, many observers believe that the recent enactment of the new Post 9/11 GI Bill benefit with its generous benefits and transferability options will have an overall beneficial impact on both recruiting and retention. Recruiting and retention problems are not necessarily solved by increasing military pay. Many components of the military compensation system that are important to recruiting and retention efforts, especially the latter, do not involve cash pay. These include retirement benefits; health care; housing; permanent change of station (PCS) moving costs and policies; exchanges, commissaries, and other retail facilities; and recreational facilities. A wide range of views about existing military personnel management practices suggests that the services’ requirements for both new enlistees and career people could be significantly reduced by changing often longstanding and inter-related assignment, promotion, career development, or retirement policies. Survey research also reveals that the sense of patriotism, public service, and esprit de corps found in capable and combat-ready Armed Forces is extremely significant to both new enlistees and career members. Furthermore, there are always limits to what increased compensation, whether cash or in-kind, can do to help any organization cope with personnel difficulties. Job and career satisfaction; public and elite views of the importance and legitimacy of the military as an institution; unit morale; and success in operational deployments and especially in combat may well be independent of compensation variables. High “scoring” in these intangibles, especially for a unique organization and culture like the Armed Forces, can and frequently does balance perceived issues in compensation. However, few analysts believe that recruiting and retention rates can be sustained at the necessary levels without continuing to maintain the momentum of recent pay raises. Many long-time observers seem to feel that money alone cannot keep a person in the military for a full career if the person does not like the military culture; they assert that the lifestyle is too demanding and too arduous for most. At the same time, it is argued that people can be driven out of the military if their compensation and living standards are not at least somewhat close to those of their demographic and educational counterparts in civilian life. 3. What is “Pay Table Reform”? The military pay table displays the amount of monthly basic pay which a servicemember is entitled to based on the member’s pay grade2 and length of service. Until 2007, the length of service component of the table ranged from “under 2” to “over 26” years of service and provided an incremental longevity pay raise every two years.3 As a result, servicemembers received their 2 As defined by Section 101 of Title 10 U.S.C., the term “grade” refers to a step or degree within a military rank while “rank” means an order of precedence among members of the armed forces. Commissioned officers have been assigned pay grades 0-1 through 0-10, warrant officers have been assigned W-1 through W-5 and enlisted personnel have been designated as E-1 through E-9. 3 Some pay grades, especially those of lower ranking personnel, are “capped” at designated points, generally because they should have been promoted to the next higher grade. For example, the last longevity increase for E-5 (Sergeant in the Army and Marine Corps, Staff Sergeant in the Air Force and Petty Officer Second Class in the Navy) occurs at “Over 12” while the final increase of 0-5 (Lieutenant Colonel in the Army, Air Force and Marine Corps) occurs at (continued...) Congressional Research Service 3 Military Pay and Benefits: Key Questions and Answers final longevity raise at 26 years of service even though their rank may have provided for service to or beyond 30 years. This pay table changed very little since it was introduced in 1958.4 Some analysts advocated longer military careers rather than the current emphasis on youth and vigor and argued that the pay tables should be extended or “reformed” to allow for service beyond 30 years with continuing longevity increases. This was commonly referred to as the “40year” pay table. The FY2007 John Warner National Defense Authorization Act (NDAA) included several significant changes to the pay table. First, effective April 1, 2007, the pay table was extended from “over 26” to “over 40” years of service.5 Second, and also effective April 1, 2007, the NDAA provided additional longevity increases at 30, 34, and 38 years of service for the most senior enlisted, warrant officer, and officer pay grades. 6 For example, the final longevity raise for E-8, W-4, 0-6, and 0-7 will occur at “over 30” years; at “over 34” for pay grades E-8, W-5, and 08; and at “over 38” for pay grades 0-9 and 0-10. Third, effective January 1, 2007, the NDAA provides additional retirement credit for service beyond 30 years, continuing to accrue at the rate of 2.5% per year.7 As a result, a servicemember who retires with 40 years of service will now qualify for 100% of basic pay in their retirement. The cumulative effect of these changes seems to suggest congressional support for longer military careers. However, the NDAA did not address other cited constraints to facilitating longer careers. Specifically, there were no changes to mandatory retirement based on years of service or age and no increase in the percentage of E-8, E-9, and W-5 who may be on active duty at a given time. As a result, the beneficiaries of this change are the most senior enlisted, warrant, and officer personnel who will continue to receive longevity pay raises and retirement credit beyond the traditional 30-year point. 4. How Are Each Year’s Increases in Military Pay Computed? Definitions The across-the-board increases in military pay discussed each year relate to military basic pay. Basic pay is the one element of military compensation that all military personnel in the same pay grade and with the same number of years of service receive. Basic allowance for housing, or BAH, is received by military personnel not living in military housing, either family housing or barracks. Basic allowance for subsistence, or BAS, is the cost of meals. All servicemembers receive BAS but at different rates based on officer or enlisted status. A federal income tax advantage accrues because the BAH and BAS allowances are not subject to federal income tax. (...continued) “Over 22.” 4 Military Compensation Background Papers: Compensation Elements and Related Manpower Cost Items, Their Purposes and Legislative Backgrounds, Sixth Edition, April 2005. 5 Section 601, P.L. 109-364. 6 Section 601, P.L. 109-364. 7 Section 642, P.L. 109-364. Congressional Research Service 4 Military Pay and Benefits: Key Questions and Answers Basic pay, BAH, BAS, and the federal income tax advantage all comprise what is known as Regular Military Compensation (RMC). RMC is that index of military pay which tends to be used most often in comparing military with civilian compensation; analyzing the standards of living of military personnel; and studying military compensation trends over time, or by service geographical area, or skill area. Basic pay is between 65% and 75% of RMC, depending on individual circumstances. RMC specifically excludes all special pays and bonuses, reimbursements, educational assistance, deferred compensation (i.e., an economic valuation of future retired pay), or any estimate of the cash value of non-monetary benefits such as health care or military retail stores.8 Annual Percentage Increases in Military Basic Pay Military Basic Pay Raises Linked to Employment Cost Index (ECI) Percentage Increases Permanent law (37 U.S.C. 1009) provides that monthly basic pay is to be increased by the annual percentage increase in the Employment Cost Index (ECI). For fiscal years 2004, 2005, and 2006, the law required the military raise to be equal to the ECI increase plus an additional one half percentage point (i.e., if the ECI annual increase were to be 3.0%, the military raise would be 3.5%). The ECI, calculated by the Department of Labor’s Bureau of Labor Statistics, measures annual percentage increases in wages, salaries, and employer costs for employee benefits on all private-sector employees, although it can be subdivided to measure increases in specific categories of such employees. Indexing the annual military pay raise to the annual increase in the ECI was established by Sec. 602 of the FY2004 NDAA (P.L. 108-136, November 24, 2003; 117 Stat. 1498, amending 37 U.S.C. 1009). Previously, the annual military pay raise was linked to the annual percentage increases in the General Schedule (GS) federal civil service pay scale. Congress Usually Sets the Amount of the Military Pay Raise Despite the statutory formula, which could operate each year without any further action, Congress has legislated a particular percentage increase in military pay every year since 1980, with the exception of 1982 and 2011. During the period 1982-1999, the percentage increase in military pay was usually identical to that granted to GS civilians. The only exceptions during this period were 1985 and 1994, when Congress provided larger increases in military pay. Even with the 2004 introduction of the Employment Cost Index as the single index for military pay, Congress has, in most cases, explicitly reiterated the increase in law rather than deferring to the permanent statutory formula. Therefore, while Congress may legislate the military pay raise percentage, the operation of the permanent formula remains important in determining what the percentage will actually be. 8 For a detailed discussion of the costs and value of monetary and non-monetary benefits, see Military Compensation: Balancing Cash and Noncash Benefits, Economic and Budget Issue Brief, Congressional Budget Office, January 16, 2004. Congressional Research Service 5 Military Pay and Benefits: Key Questions and Answers Annual Increases in Basic Allowances for Housing (BAH) and Subsistence (BAS) Housing (37 U.S.C. 403) and subsistence (37 U.S.C. 402) allowances are paid to all personnel not living in military housing or eating in military dining facilities or using field rations. Monthly BAH varies by rank, by whether the person has dependents, and, most importantly, by location. BAS, on the other hand, is paid at a uniform rate to all officers and at a uniform but slightly higher rate for all enlisted personnel. Annual increases in BAH and BAS are both based on surveys of local housing and food costs respectively, and thus are not affected by the annual percentage increase in the ECI. (For many years BAH and its predecessors and BAS were subject to the annual percentage increase; this was not changed until the late 1990s.) There have been occasional proposals to survey the housing costs on which BAH is based more frequently than once a year, due to rapidly rising housing costs in many areas of the United States. Particular emphasis is placed by supporters of more frequent surveys on fast-rising electricity costs, notably for heating and cooling. In addition, there have been calls to merge BAS with basic pay to reduce the complexity of military compensation and the need for BAS computations each year. 5. What Have Been the Annual Percentage Increases in Active Duty Military Basic Pay Since 1993 (FY1994)? What Were Each Year’s Major Executive and Legislative Branch Proposals and Actions on the Annual Percentage Increase in Military Basic Pay? The following subsections itemize action on the active duty military basic pay increase going back to 1993 (the FY1994 budget). Unless otherwise noted, all increases were proposed to be effective on January 1 of the fiscal year indicated. The same is true of discussions of future pay raises. 2010 (FY2011). Statutory formula: 1.4%. Administration request:1.4%. The House version of the FY2011 NDAA supported a 1.9% across-the-board pay raise; a raise 0.5% above the ECI. Both the Senate-reported bill and H.R. 6523 (the House and Senate-passed version of the NDAA) were silent on the pay raise issue. As a result, 37 U.S.C. 1009 became operative with an automatic January 1, 2011, across-the-board raise of 1.4%; equal to the ECI. At 1.4%, this was the smallest military pay raise since 1962, when no raise was enacted. Final version: 1.4% across-the-board. 2009 (FY2010). Statutory formula: 2.9%. Administration request: 2.9%. Final version: 3.4% across-the-board (0.5% higher than the ECI) effective January 1, 2010. 2008 (FY2009). Statutory formula: 3.4%. Administration request: 3.4%. Final version: 3.9% across-the-board increase (0.5% higher than the annual ECI increase). 2007 (FY2008). Statutory formula: 3.0%. Administration request: 3.0% across-the-board. Final version: 3.5% across-the-board. The presidential veto of the initial FY2008 NDAA resulted in a 3.0% pay raise taking effect on January 1, 2008 (statutory formula), with the remaining 0.5% being made retroactive to January 1, 2008, upon enactment of the final version of the FY2008 NDAA (H.R. 4986; P.L. 110-181). 2006 (FY2007). Statutory formula: 2.2%. Under current law, the FY2007 pay was based solely on the ECI and not a rate 0.5% higher than the ECI. Administration request: 2.2% across the Congressional Research Service 6 Military Pay and Benefits: Key Questions and Answers board. Final Version: 2.2% across the board but with an additional April 1, 2007, targeted pay raise that would be as high as 8.3% for some warrant officers and range from 2.5% for E-5s to 5.5% for E-9s.9 2005 (FY2006). Statutory formula: 3.1%. (0.5% higher than the annual increase in the Employment Cost Index (ECI) which was 2.6%). Administration request: 3.1% across-the-board. Final version: 3.1% across the board. 2004 (FY2005). Statutory formula: 3.5%. Administration request: 3.5% across-the-board. Final version: FY2005 NDAA (Section 601, P.L. 108-375, October 28, 2004; 118 Stat. 1811), 3.5% across-the-board. [Unlike the years 1999-2003 (FY2000-FY2004), the Administration did not request and the Congress did not enact, a “targeted” increase based on which particular pay grades and years-of-service cohorts need more pay to improve career retention.] 2003 (FY2004). Statutory formula: 3.7%. Administration request: Average 4.1%; minimum 2.0%; maximum of 6.5%. Final version. FY2004 NDAA (Section 601, P.L. 108-136, November 24, 2003; 117 Stat. 1392). Average 4.15%: floor 3.7%; maximum 6.25% for some senior NCOs. Also included language requiring that after FY2006, the annual military pay raise would be equal to the annual percentage rise in the Employment Cost Index (see above, #3, for a description of the ECI), thus repealing previous law that had the effect of mandating a pay raise equal to the ECI minus 0.5%. Existing temporary law, enacted in 1999 in the FY2000 NDAA, which required an increase equal to the ECI plus 0.5% during FY2001-FY2006, was not changed. (See below under “Suspension of Statutory Formula during FY2001-FY2006.) 2002 (FY2003). Statutory formula: 4.1%. Administration request: Minimum 4.1%; average 4.8%; for some mid-level and senior noncommissioned officers, warrant officers, and mid-level commissioned officers, between 5.0% and 6.5%. Final increase: identical to the Administration request, embodied, as usual, in the FY2003 Bob Stump National Defense Authorization Act (P.L. 107-314, December 2, 2002; 116 Stat. 2458). The House and Senate had also approved the Administration request. 2001 (FY2002). Statutory formula: 4.6%. Administration request: numerous figures for the “Administration request” were mentioned in the pay raise debate, depending on when and which agency produced the figures. In general, however, they all proposed increases of at least 5% and no more than 15% (the latter applying only to a very few individuals), depending on pay grade and years of service; the average increase for FY2002 was 6.9%. Final increase: Eventually, the FY2002 National Defense Authorization Act (Section 601, P.L. 107-107, December 28, 2001) endorsed an “Administration request” of between 5 and 10%, depending on pay grade and years of service. These increases remain the largest across-the-board percentage raises since that of FY1982, which took effect on October 1, 1981. The latter was a 14.3% across-the-board raise, which followed an 11.7% raise the previous year, FY1981, resulting in a two-year raise of almost 28%. This was principally in response to the high inflation of the late 1970s. 2000 (FY2001). Statutory formula: 3.7% (based on the 1999/FY2000 legislation; the original statutory formula would have led to a proposed raise of 2.7%). Administration request: 3.7%. Final increase: The FY2001 Floyd D. Spence National Defense Authorization Act (Section 601, P.L. 106-398, October 30, 2000; 114 Stat. 1654A-1 at A-143) approved the 3.7% figure. In 9 Maze, Rick, “DoD seeks targeted raises of up to 8.3 percent,” Army Times, March 20, 2005. Congressional Research Service 7 Military Pay and Benefits: Key Questions and Answers addition, as was the case in the previous year, additional increases averaging 0.4% (based on the size of the across-the-board raise the amount of money used would have funded; the range of additional percentage raises was between 1.0 and 5.5%) were provided to middle-grade officer and enlisted personnel, to be effective July 1, 2001. 1999 (FY2000). Statutory formula: 4.8%. Administration request: 4.4% on January 1, 2000, but in addition, on July 1, 2000, a wide range of targeted increases averaging an additional 1.4% (again, based on the size of across-the-board raise the cost of the targeted increases would finance) in mid-level officer and enlisted grades’ pay levels. Final increase: The FY2000 National Defense Authorization Act (Section 601, P.L. 106-65; October 5, 1999) raised the January 1, 2000, increase to 4.8%, and accepted the July 1, 2000, targeted increases. 1998 (FY1999). Statutory formula: 3.1%. Administration request: 3.6%. The House approved 3.6%, or whatever percentage increase was approved for federal GS civilians, whichever was higher. The Senate approved 3.6%. Final increase: The FY1999 Strom Thurmond National Defense Authorization Act (Section 601, P.L. 105-261; October 17, 1998; 112 Stat. 1920 at 2036) approved the House alternative, which resulted in a 3.6% military increase, as GS civilians also received 3.6%. 1997 (FY1998). Statutory formula: 2.8%. Administration request: 2.8%. Final increase: FY1998 National Defense Authorization Act (Section 601, P.L. 105-85, November 18, 1997; 111 Stat. 1629 at 1771): 2.8%. 1996 (FY1997). Statutory formula: 2.3%. Administration request: 3.0%. Final increase: The House and Senate both approved the higher Administration request of 3.0%, and it was therefore included in the FY1997 National Defense Authorization Act (Section 601, P.L. 104-201, September 23, 1996; 110 Stat. 2422 at 2539). 1995 (FY1996). Statutory formula: 2.4%. Administration request: 2.4%. Final increase: Congress also approved 2.4% in the FY1996 National Defense Authorization Act (Section 601, P.L. 104106, February 10, 1996; 110 Stat. 186 at 356). 1994 (FY1995). Statutory formula: 2.6%. Administration request: 1.6%; one percent less than the statutory formula. Final increase: The FY1995 National Defense Authorization Act (Section 601, P.L. 103-337, October 5, 1994; 108 Stat. 2663 at 2779) authorized the statutory formula figure of 2.6%. 1993 (FY1994). Statutory formula: 2.2%. Administration request: No increase; military (and civil service) pay would have been frozen in FY1994. The Administration also proposed limiting future civil service—and hence active duty military—pay raises to one percentage point less than that provided by the existing statutory formula. None of these proposals was adopted. Final increase: The FY1994 National Defense Authorization Act (Section 601, P.L. 103-160, November 30, 1993, 107 Stat. 1547 at 1677) authorized 2.2%. 6. Is There a “Pay Gap” Between Military and Civilian Pay, So That Generally Military Pay Is Less than That of Comparable Civilians? If So, What Is the Extent of the “Gap”? The issue of a military-civilian “pay gap” raises several questions: Congressional Research Service 8 Military Pay and Benefits: Key Questions and Answers • How can the existence of a gap be determined and the gap be measured? • Is there a gap, with civilians or the military being paid more? If so, how much of a gap? • If there is a gap, does that in itself require action? • What are the effects of any such gaps? A wide range of studies over the past several decades has compared military and civilian (both federal civil service and private sector) compensation. In general, the markedly different ways in which civilian public and private sector compensation and benefit systems are structured, compared to that of the Armed Forces, make it difficult to validate any generalizations about whether there is a “gap” between military and civilian pay. Some advocates for federal civil servants argue that federal civilian pay lags behind private sector pay, which in turn leads some people, given the past linkage between civil service and military pay percentage increases, to infer that military pay lags behind private sector pay. However, because the current statistic used to measure private sector pay, the ECI, measures annual percentage increases and not dollar amounts, no such inference is really possible. As noted above, the debate, in recent years, over “pay parity” between the military and federal civil service pay increases, involves the percentage amount of the civilian pay raise. It has not, so far, involved the military pay raise proposal at all. The issue has been whether the civil service should get a percentage raise identical to that of the military, or whether the military should get a higher raise because of (1) the much greater degree of danger and hardship military service entails, compared to most civilian employment, especially in time of war, and (2) the need to cope with actual or forestall potential military recruiting and retention problems. Measuring and Confirming a “Gap” It is extremely difficult to find a common index or indicator to compare the dollar values of military and civilian compensation. First, military compensation includes numerous separate components, whose receiving population and taxability vary widely. Which of these, if any, should be included in a military-civilian pay comparison? Furthermore, total military compensation includes a wide range of non-monetary benefits: a retirement annuity after “vesting” at 20 years of service, health care, retail stores, and recreational facilities. Few civilians work in organizations where analogous benefits are provided. Attempts to facilitate a comparison by assigning a cash value to non-cash benefits almost always founder on the large number of debatable assumptions that must be made to generate such an estimate. Second, it is also extremely difficult to establish a comparison between military ranks and pay grades on the one hand, and civilian jobs on the other. The range of knowledge, supervision, and professional judgment required of military personnel and civilians performing similar duties in a standard peacetime industrial or office milieu may well be similar. When the same military member’s likely job in the field, possibly in combat, is concerned, comparisons become difficult. Third, generally speaking, with some exceptions, the conditions of military service are frequently much more arduous than those of civilian employment, even in peacetime, for families as well as military personnel themselves. This aspect of military service is sometimes cited as a rationale for military compensation being at a higher level than it otherwise might be. On the other hand, the military services all mention travel and adventure in exotic places as a positive reason for Congressional Research Service 9 Military Pay and Benefits: Key Questions and Answers enlistment and/or a military career, so it may be misleading to automatically assume this is always a liability. Fourth, comparisons between different sets of compensation statistics, and the use of these comparisons to determine what military pay should be, can yield very different results. Comparing dollar amounts may lead to different conclusions than comparing the annual increases in pay for each position. The percentage increase in pay over different time periods is more often than not very different. Different indexes with different components can be used to determine compensation changes. Finally, the level of specificity used in a pay comparison can lead to sharply differing results, especially when the comparison is between private sector and federal pay as a whole, both civil service and military. For instance, all Army colonels may, according to some indexes, be paid roughly as much as federal civil service GS-15s, or as much as private sector managers with certain responsibilities. Thus, those occupational specialties that are highly paid in the private sector—health care, information technology, some other scientific and engineering skills, are examples—are frequently paid considerably less in the military or in the civil service. Other common subcategories for comparison, in addition to occupational skill, include age, gender, years in the labor force, and educational levels. As noted by the Congressional Budget Office:10 Comparing compensation in the military and civilian sectors can be problematic. One obvious limitation is that such comparisons cannot easily account for different job characteristics. Many military jobs are more hazardous, require frequent moves, and are less flexible than civilian jobs in the same field. Members of the armed forces are subject to military discipline, are considered to be on duty at all times, and are unable to resign, change jobs at will or negotiate pay. Military personnel also receive extensive training, paid for by the government. Family support programs are generally more available in the military compared with civilian employers. Intangible rewards, such as a shared sense of purpose, may be higher among military personnel as well. Quantifying those elements among military and civilian personnel is extremely difficult. Estimates of a Military-Civilian Pay Gap Numerous comparisons of military and civilian compensation in recent years have been cited either to illustrate a gap that favors civilian pay levels or to refute the existence of such a gap. Many of these reports lack precision in identifying what aspects of military pay were compared with civilian pay, which indexes were used to make the comparison, or the length of time covered by the comparison. Although it is difficult to generalize, it would appear that most of those estimates which assert that there is a pay gap in favor of higher civilian pay find a percentage difference of between 2% and 13% in recent years with parity being achieved most recently in 1982. Other analysts, using a slightly different measurement which includes the housing allowance in the calculation, contend that the pay gap vanished in 2002 and that there is currently an 11% military pay surplus.11 10 11 “Evaluating Military Compensation”, Congressional Budget Office, June, 2007, p.2. “Pay Raise: 1.4% Assured; 1,9% Unlikely”, Tom Philpott, December 9, 2010. Congressional Research Service 10 Military Pay and Benefits: Key Questions and Answers Estimates have been made that question the existence of a gap favoring civilians. These tend to compare specific populations of military personnel with equally specific subcategories of civilians. Analyses of this nature appear to be less common than the across-the-board comparisons, almost certainly because they are much more difficult to do. 12 In 2002, General Accounting Office (GAO) analysts itemized the components of the military benefit package—such as military retirement, health care, Servicemembers’ Group Life Insurance, base recreational facilities, and the like—and compared them with the private sector. It found that the range of benefits available to military personnel was generally comparable to, and in some cases superior to, benefits available in the private sector. The GAO study did not appear to have made dollar-figure comparisons or compared military non-cash benefits—such as health care, commissaries or exchanges, or annual leave—with benefits in the private sector, either by figuring out their dollar worth or by itemizing their exact provisions in great detail.13 This GAO report was followed in 2008 by the 10th Quadrennial Review of Military Compensation (QRMC)14 which also addressed the pay gap issue and recommended that a new comparative model could be better suited to measuring the difference between military pay and comparable civilian occupations. The commission recommended replacing Regular Military Compensation (RMC) with a new measure called Military Annual Compensation (MAC). While RMC includes base pay, BAH, BAS and the federal tax advantage from the two allowances, MAC would also factor in the health care benefit, the value of the military retirement annuity, and state and Social Security tax advantages. Based on the QRMC analysis and using MAC as the comparative tool, enlisted and officer personnel fare better than their civilian counterparts in cash compensation according to the economic modeling done by the QRMC. This represents the first time that a QRMC has recommended inclusion of benefits when comparing military and civilian compensation levels. While estimating the pay gap continues to be a challenge, it appears that the substantial increases in military pay and benefits since the late 1990s, whatever the existing relative relationship of military to civilian compensation as of that time, have probably had the effect of favoring the military. If There Is a Pay Gap, Does It Necessarily Matter? Some have suggested that the emphasis on a pay gap, whether real or not, or if real, how much, is unwarranted and not a good guide to arriving at sound policy. They argue that the key issue is, or should be, not comparability of military and civilian compensation, but the competitiveness of the former. Absent a draft, the Armed Forces must compete in the labor market for new enlisted and officer personnel. The career force by definition has always been a “volunteer force,” and thus 12 See, for example, Office of the Under Secretary of Defense for Personnel and Readiness. Report of the Ninth Quadrennial Review of Military Compensation. Vol. I. Washington, March 2002: passim, but especially 29-74, 137-82, 188-89; and Asch, Beth J., and James R. Hosek. “Military Compensation: Trends and Policy Options,” Documented Briefing. Santa Monica, CA, RAND Corporation, 1999. 13 U.S. General Accounting Office [now Government Accountability Office], Military Personnel: Active Duty Benefits Reflect Changing Demographics, but Opportunities Exist to Improve, GAO-02-935, September 18, 2002. 14 The Quadrennial Review of Military Compensation or QRMC is required every four years by 37 U.S.C. 1008(b). The 10th QRMC was convened in August 2005 and submitted the final portion of its report in July 2008. Volume 1, which included the recommendations concerning the pay gap, can be viewed at http://www.defenselink/mil/prhome/ docs/Tenth_QRMC_feb2008_Vol%20I.pdf. Congressional Research Service 11 Military Pay and Benefits: Key Questions and Answers has always had to compete with civilian opportunities, real or perceived. Given these facts, some ask what difference it makes whether military pay is much lower, the same, or higher than that of civilians? If the services are having recruiting difficulties, then pay increases might be appropriate, even if the existing “gap” favors the military. Conversely, if military compensation is lower than equivalent civilian pay, and if the services are doing well in recruiting and retaining sufficient numbers of qualified personnel, then there might be no reason to raise military pay. However, some believe that explicitly basing military compensation on “purely economic” competitiveness with civilian pay could have undesirable consequences: for instance, in a time of economic difficulty, the military might be receiving lower pay than most civilians but still recruiting satisfactorily due to high unemployment. For further discussion of the “pay gap” issue, see Congressional Budget Office, What Does the Military “Pay Gap” Mean? June 1999; and Association of the U.S. Army, [A non-profit group that works to advance the interests of military members.] Closing the Pay Gap, Arlington, VA, October 2000. 7. What Benefits Are Specifically Available For Military Personnel Participating in Operation Iraqi Freedom (OIF)/Operation New Dawn (OND)15 and Operation Enduring Freedom (OEF)?16 Hostile Fire/Imminent Danger Pay Many military personnel participating in OEF and OIF/OND may be eligible for Hostile Fire or Imminent Danger Pay (HF/IDP). HF/IDP is authorized by 37 U.S.C. 310, which provides a special pay for “duty subject to hostile fire or imminent danger.” While DOD regulations distinguish between Hostile Fire Pay and Imminent Danger Pay, both are derived from the same statute. An individual can only collect Hostile Fire Pay or Imminent Danger Pay, not both simultaneously. The purpose of this pay is to compensate servicemembers for physical danger. Iraq, Afghanistan, Kuwait, Saudi Arabia, and many other nearby countries have been declared imminent danger zones by the Secretary of Defense. Military personnel serving in such designated areas are eligible for HF/IDP. To be eligible for this pay in a given month, a servicemember must have served some time in one of the designated zones, even if only a day or less. The authorizing statute for HF/IDP previously set the rate at $150 per month. However, the FY2004 National Defense Authorization Act (NDAA) (P.L. 108-136, section 619) temporarily increased this rate to $225, through December 31, 2004. The FY2005 NDAA made this increase permanent. (For some detailed background on HF/IDP, see CRS Report RS21632, Military Pay: Controversy Over Hostile Fire/Imminent Danger Pay and Family Separation Allowance Rates, by Lawrence Kapp.) Most recently, the House-passed version of the FY2011 NDAA17 provided for a $35 per month increase in Hostile Fire/Imminent Danger Pay. This increase was not supported by the Senate and was not included in the enacted version of the NDAA. 15 Operation Iraqi Freedom became Operation New Dawn (OND) on September 1, 2010. 16 Much of this material is taken from CRS Report RL31334, Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom: Questions and Answers About U.S. Military Personnel, Compensation, and Force Structure, by Lawrence Kapp and Charles A. Henning. 17 Section 618, H.Rept. 111-491, May 21, 2010. Congressional Research Service 12 Military Pay and Benefits: Key Questions and Answers Hardship Duty Pay Military personnel serving in Iraq, Afghanistan, parts of the Persian Gulf region, and certain nearby areas are also eligible for Hardship Duty Pay (HDP), authorized by 37 U.S.C. 305. It is compensation for the exceptional demands of certain duty, including unusually demanding mission assignments (HDP-Mission), locations with extreme climates or austere facilities (HDPLocation), or for an involuntary extension of duty (HDP-Involuntary Extension).18 The maximum amount of HDP previously permitted by the statute was $300 per month; this maximum was increased to $750 per month by the FY2006 NDAA and then raised to $1,500 per month by the FY2008 NDAA. While these increases have been significant, the actual DOD-approved rate for HDP for both Iraq and Afghanistan is, and has been, $100 per month. Family Separation Allowance Military personnel participating in OEF and OIF/OND may also be eligible for Family Separation Allowance (FSA). FSA is authorized by 37 U.S.C. 427, which provides a special pay for those servicemembers with dependents who are separated from their families for more than 30 days. The purpose of this pay is to “partially reimburse, on average, members of the uniformed services involuntarily separated from their dependents for the reasonable amount of extra expenses that result from such separation....” To be eligible for this allowance, U.S. military personnel must be separated from their dependents for 30 continuous days or more; but once the 30-day threshold has been reached, the allowance is applied retroactively to the first day of separation. The authorizing statute for FSA sets the rate at $250 per month. The House-passed version of the FY2011 NDAA19 also recommended increasing FSA by $35 a month to $285. Again, this legislation was not supported by the Senate and was not included in the enacted version of the NDAA. 20 Per Diem Military personnel serving in OIF/OND/OEF are also entitled to per diem payments of $105 per month; the rate is the same for all personnel. Savings Deposit Program Another benefit available to those deployed to Afghanistan, Iraq, and other designated areas nearby is eligibility for the Savings Deposit Program. This program allows service members to earn a guaranteed rate of 10% interest on deposits of up to $10,000, which must have been earned in the designated areas. The deposit is normally returned to the servicemember, with interest, within 90 days after he or she leaves the eligible region, although earlier withdrawals can sometimes be made for emergency reasons. 18 To support the surge in Iraq, a number of units were involuntarily extended from the original 12-month deployment to a revised 15-month deployment. Soldiers assigned to these units were authorized an additional $200/month HDP during this 3-month extension. 19 Section 604, H.Rept. 111-491, May 21, 2010. Congressional Research Service 13 Military Pay and Benefits: Key Questions and Answers Combat Zone Tax Exclusion One of the more generous benefits for many of those serving overseas in OEF or OIF is the “combat zone tax exclusion.” Certain areas in the Persian Gulf region—including Iraq and the airspace above it—have been designated combat zones since the 1990-1991 Persian Gulf War. Afghanistan and the airspace above it have been designated a “combat zone” since September 19, 2001. Military personnel serving in direct support of operations in these combat zones are also eligible for the combat zone tax exclusion. For enlisted personnel and warrant officers, this means that all compensation for active military service in a combat zone is free of federal income tax. For commissioned officers, their compensation is free of federal income tax up to the maximum amount of enlisted basic pay plus any imminent danger pay received. While this benefit applies only to federal income tax, almost all states have provisions extending the benefit to their state income tax as well. In addition, military personnel who receive a reenlistment bonus while stationed in a combat zone do not have to pay federal income tax on any of the bonus. The amounts involved can be substantial. For example, the Army recently increased reenlistment bonuses for Special Forces NCOs to a lump sum of $150,000 for a six-year reenlistment; $75,000 for five years; $50,000 for four years; and $30,000, $18,000, and $8,000 for three years, two years, and one year respectively. The 2006 NDAA boosted the maximum reenlistment bonus for career soldiers other than Special Forces to $90,000.21 Rest and Recreation (R&R) for Personnel In OIF/OND/OEF As has been widely reported, military personnel serving 12-month tours of duty in Iraq and Afghanistan are entitled to one 15-day period of “R&R” or home leave in the United States during their tour. Initially the program was designed to fund the travel of personnel from either theater of operations to several major “gateway” airports in the United States and any further travel within the United States had to be funded by the individual. However, Congress has since authorized funding of internal travel within the United States. Reimbursement will be for the military member’s travel; there is no funding for dependent travel to meet military personnel on R&R. (There has been some funding of such dependent travel by private charitable organizations.) 8. What Cash Lump-Sum Death Benefits Are Available to the Survivors of Military Personnel Killed in Iraq or Afghanistan? Currently, the survivors (usually spouses or parents) of military personnel who die while serving in Operations Iraqi Freedom, New Dawn, or Enduring Freedom (OIF, OND or OEF) are entitled to several lump-sum monetary benefits. These include a $100,000 death gratuity, payable within a few days of the death to assist families in dealing with immediate expenses; a $255 Social Security lump sum; coverage of burial expenses up to $6,900 [a Department of Veterans Affairs (VA) benefit]; and Servicemembers’ Group Life Insurance (SGLI)22 of $400,000.23 There are also 21 Section 629, National Defense Authorization Act for Fiscal Year 2006, December 18, 2005. 22 All servicemembers are automatically enrolled in this benefit, which is paid for by an approximate $16 monthly deduction from pay, members may opt out or reduce coverage, but less than 1% do so. 23 The death gratuity and the SGLI maximum amount were raised substantially by the FY2005 Supplemental (continued...) Congressional Research Service 14 Military Pay and Benefits: Key Questions and Answers a wide range of recurring-payment survivor benefits from both DOD and the VA, as well as nonmonetary benefits.24 For more information on military death benefits, see CRS Report RL31334, Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom: Questions and Answers About U.S. Military Personnel, Compensation, and Force Structure, by Lawrence Kapp and Charles A. Henning; and CRS Report RL32783, FY2005 Supplemental Appropriations for Iraq and Afghanistan, Tsunami Relief, and Other Activities, by Amy Belasco and Larry Nowels. Author Contact Information Charles A. Henning Specialist in Military Manpower Policy chenning@crs.loc.gov, 7-8866 (...continued) Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief (the “FY2005 Supplemental”) (P.L. 109-13, May 11, 2005; 119 Stat. 231). The death gratuity was raised from $12,420 to $100,000; and the maximum SGLI coverage was raised from $250,000 to $400,000 with the first $150,000 provided free for personnel in a combat zone. Because these increases are in an FY2005 appropriation law, they were scheduled to expire at the end of FY2005. However, the 2006 NDAA applied the $100,000 death gratuity to all active-duty deaths (not just those that were combat-related) and made the payments retroactive to October 7, 2001. In addition, survivors of service members who died of non-combat causes on active duty between October 7, 2001, and the date of enactment of the 2006 NDAA received retroactive payments of $150,000. This latter payment closed an SGLI loophole. The FY2007 John Warner National Defense Authorization Act increased the amount of “free” SGLI coverage from $150,000 to $400,000 for all servicemembers serving in OIF and OEF. 24 For the earlier legislative history of some of these benefits, monetary and non-monetary, see Office of the Secretary of Defense. Military Compensation Background Papers. Sixth Edition. April 2005. A more detailed summary of all such benefits and a comparison of them with federal civilian and state and local government survivor benefits is at U.S. Government Accountability Office, Military Personnel: Survivor Benefits for Servicemembers and Federal, State, and City Government Employees, GAO-04-814, July 2004. Congressional Research Service 15 Congressional interest in the sustaining the all-volunteer force during a time of sustained combat operations led to substantial increases in compensation in the decade following the September 11th attacks. More recently, concerns over government spending have generated congressional interest in slowing the rate of growth in military compensation. Some have raised concerns about the impact of personnel costs on the overall defense budget, arguing that they decrease the amount of funds available for modernizing equipment and sustaining readiness. Others argue that robust compensation is essential to maintaining a highquality force that is vigorous, well-trained, experienced, and able to function effectively in austere and volatile environments. The availability of funding to prosecute wars in Iraq and Afghanistan mitigated the pressure to trade-off personnel, readiness, and equipment costs, but the current budgetary environment appears to have brought these trade-offs to the fore again. The average cost to compensate an active duty servicemember—to include cash, benefits, and contributions to retirement programs—is estimated at about $90,000- $100,000 per year, although some estimates are higher (methodologies vary). However, gross compensation figures do not tell the full story, as military compensation relative to civilian compensation is a key factor in an individual’s decision to join or stay in the military. Thus, the issue of comparability between military and civilian pay is an often-discussed topic. Some analysts and advocacy groups have argued that a substantial “pay gap” has existed for decades —with military personnel earning less than their civilian counterparts—although they generally concede that this gap is fairly small today. Others argue that the methodology behind this “pay gap” is flawed and does not provide a suitable estimate of pay comparability. Still others believe that military personnel, in general, are better compensated than their civilian counterparts. This latter perspective has become more prominent in the past few years. The Department of Defense takes a different approach to pay comparability. The 9th Quadrennial Review of Military Compensation (QRMC), published in 2002, argued that compensation for servicemembers should be around the 70th percentile of wages for civilian employees with similar education and experience. However, according to the 11th QRMC, published in 2012, it had reached the 83% level for officers and the 90% level for enlisted personnel. On February 1, the congressionally established Military Compensation and Retirement Modernization Commission is due to deliver its report, which will likely include a variety of recommendations for restructuring military compensation and adjusting compensation levels that Congress may choose to consider. Congressional Research Service Military Pay: Key Questions and Answers Contents Introduction...................................................................................................................................... 1 Key Questions and Answers ............................................................................................................ 1 1. How are military personnel compensated? ............................................................................ 1 2. What is Regular Military Compensation (RMC)? How much do Servicemembers receive in RMC?..................................................................................................................... 2 Regular Military Compensation (RMC).............................................................................. 2 3. How Are Each Year’s Increases in Basic Pay, BAH, and BAS Computed? .......................... 8 Basic Pay: Increases Are Linked to Increases in the Employment Cost Index (ECI)................................................................................................................................. 8 Basic Allowance for Housing: Increases are Linked to Increases in Housing Costs .......... 9 Basic Allowance for Subsistence: Increases are Linked to Increases in Food Costs ........ 11 4. What Have Been the Annual Percentage Increases in Active Duty Military Basic Pay Since 1994? What Were Each Year’s Major Executive and Legislative Branch Proposals and Actions on the Annual Percentage Increase in Military Basic Pay?.............. 11 5. What Is An “Adequate” Level of Military Pay? .................................................................. 13 6. Is There a “Pay Gap” Between Military and Civilian Pay? Do Military Personnel Make More or Less Than Their Civilian Counterparts? ....................................................... 14 Measuring and Confirming a “Gap” ................................................................................. 15 Estimates of a Military-Civilian Pay Gap ......................................................................... 16 If There Is a Pay Gap, Does It Necessarily Matter? .......................................................... 17 7. What Additional Benefits Are Available For Military Personnel Serving in Iraq and Afghanistan?......................................................................................................................... 18 Hostile Fire/Imminent Danger Pay.................................................................................... 18 Hardship Duty Pay ............................................................................................................ 19 Family Separation Allowance ........................................................................................... 19 Per Diem............................................................................................................................ 19 Combat Zone Tax Exclusion ............................................................................................. 19 Savings Deposit Program .................................................................................................. 20 8. What Benefits Are Available to the Survivors of Military Personnel Killed in Iraq or Afghanistan?..................................................................................................................... 20 Tables Table 1. Major Compensation Elements Provided to All Active Duty Personnel ........................... 3 Table 2. Average Regular Military Compensation for Selected Paygrades ..................................... 8 Contacts Author Contact Information........................................................................................................... 21 Congressional Research Service Military Pay: Key Questions and Answers Introduction The military compensation system is complex and includes an array of cash compensation elements, non-cash compensation (benefits), deferred compensation (retirement pay and benefits), and tax advantages. This report focuses primarily on the cash compensation provided to members of the active component armed forces.1 Other CRS reports cover military retirement and health care.2 Military compensation is a critical tool for sustaining recruiting, retention and the overall quality of the force. Over the years of operations in Iraq and Afghanistan, particularly during times of major combat operations, robust compensation has been an important mechanism by which Congress helped the services, and particularly the Army, meet their recruiting and retention goals. Today, the average cost to compensate an active duty servicemember—to include cash, benefits, and contributions to retirement programs—is estimated at about $90,000- $100,000 per year, although some estimates are higher (methodologies vary). As a result, some analysts believe that the military compensation is now too high and is impeding efforts to modernize equipment and sustain readiness, particularly given the budgetary limits imposed by the Budget Control Act of 2011 (BCA; P.L. 112-25). Others argue that robust compensation is essential to maintaining a high-quality force that is vigorous, well-trained, experienced, and able to function effectively in austere and volatile environments. The availability of additional funding to prosecute wars in Iraq and Afghanistan mitigated the pressure to trade-off personnel and equipment costs for many years, but the current budgetary environment appears to have brought these trade-offs to the fore again. Key Questions and Answers 1. How are military personnel compensated? There are three main ways in which military personnel are compensated: cash compensation, noncash compensation, and deferred compensation. • Cash compensation takes a variety of forms and includes basic pay, housing and subsistence allowances, enlistment bonuses, skill proficiency pay, and additional pay for particularly demanding or dangerous duty. • Non-cash compensation includes various types of benefits such as medical and dental care, government-provided housing, educational benefits, access to 1 Unless otherwise specified, the terms “member of the armed forces” or “servicemember” in this report refers to members of the active component. Members of the reserve component personnel receive nearly identical compensation when they are ordered to active duty for over 30 days, but are compensated somewhat differently when on active duty for 30 days or less, and much differently when not on active duty. For more information on reserve component compensation see CRS Report RL30802, Reserve Component Personnel Issues: Questions and Answers, by Lawrence Kapp and Barbara Salazar Torreon. 2 See CRS Report RL34751, Military Retirement: Background and Recent Developments, by David F. Burrelli and Barbara Salazar Torreon, CRS Report RL33537, Military Medical Care: Questions and Answers, by Don J. Jansen, and CRS Report RS22402, Increases in Tricare Costs: Background and Options for Congress, by Don J. Jansen. Congressional Research Service 1 Military Pay: Key Questions and Answers subsidized grocery stores (commissaries) and child care centers, and spaceavailable travel on military aircraft. • The main elements of deferred compensation are retired pay and retiree health care, but continuing access to commissaries, space-available travel, and other benefits are also part of this. Servicemembers also have access to the Thrift Savings Plan, although they generally do not receive matching contributions from the government. Some of these compensation elements are provided to all servicemembers, while others are provided only to certain populations. The basic compensation package provided to all servicemembers includes basic pay, a housing allowance (or government-provided housing), a subsistence allowance (or government-provided meals), free medical and dental care for servicemembers, free or low-cost medical and dental care for dependents, paid annual leave, and certain other benefits. Table 1 summarizes the main elements of compensation provided to all servicemembers. Servicemembers may also receive additional cash compensation based on their occupational specialty, duty assignment, or other factors. 2. What is Regular Military Compensation (RMC)? How much do Servicemembers receive in RMC? When people talk about military pay, they are often only referring to “basic pay.” Although basic pay is usually the largest component of cash compensation that a servicemember receives, there are other types of military pay that add significantly to it, and there are tax benefits as well. “Regular Military Compensation” is a statutorily defined measure of the major compensation elements which every servicemember receives. It is widely used as a basic measure of military cash compensation levels, and for comparisons with civilian salary levels. Regular Military Compensation (RMC) RMC, as defined in law, is “the total of the following elements that a member of the uniformed services accrues or receives, directly or indirectly, in cash or in kind every payday: basic pay, basic allowance for housing, basic allowance for subsistence, and Federal tax advantage accruing to the aforementioned allowances because they are not subject to Federal income tax.”3 Though military compensation is structured much differently than civilian compensation, making comparison difficult, RMC provides a more complete understanding of the cash compensation provided to all servicemembers and therefore is usually preferred over just basic pay when comparing military with civilian compensation, analyzing the standards of living of military personnel, or studying military compensation trends over time. 3 Statutory definition contained in 37 U.S.C. 101(25). Congressional Research Service 2 Table 1. Major Compensation Elements Provided to All Active Duty Personnel Name Basic Pay Statutory Authority 37 USC 203, 204, 1009 Purposea “Basic pay is the primary means of compensating members of the armed forces for their service to the country. Except during periods of unauthorized absence, excess leave, and confinement after an enlistment has expired, every member is entitled to basic pay while on active duty. Basic pay is paid to individual members on a regular basis; the amount of basic pay to which a particular member is entitled depends on the member’s pay grade and length of service.” Government-provided housing Provided to all servicemembers. Rate of payment varies based on rank and years of service. Click here for 2015 Basic Pay Rates. The government provides housing to many servicemembers and their families, but the large majority live off-post in the civilian housing market and receive BAH or OHA. or Basic Allowance for Housing (BAH) Description 37 USC 403 or Overseas Housing Allowance (OHA) BAH and OHA “provide a cash allowance to military personnel not provided with government quarters adequate for themselves and their dependents to enable such personnel to obtain civilian housing as a substitute.” BAH is provided to servicemembers based in the United States not provided with government housing; OHA to those based outside the United States. Rate varies based on servicemember’s rank, location, and whether or not the servicemember has dependents (see footnote 4 for the definition of “dependent”). Click here for 2015 Basic Allowance for Housing Rates. Click here for 2015 Overseas Housing Allowance Rates. Government-provided meals or Basic Allowance for Subsistence (BAS) CRS-3 37 USC 402 BAS “provide[s] a cash allowance to members of the armed forces to defray a portion of the cost of subsistence, such allowance being payable to all enlisted and officer personnel, with variations to account for the unavailability of adequate messing facilities at some duty stations.” All servicemembers receive BAS except in limited circumstances when they are required to eat government-provided meals (e.g., enlisted personnel in basic training). The BAS rate varies based on officer or enlisted status; enlisted receive higher BAS than do officers. Click here for 2015 Basic Allowance for Subsistence Rates. Name Medical and Dental Care Statutory Authority 10 USC 1071-1110 Purposea Description “To make medical care available to members of the uniformed services and their dependents in order to help ensure the availability of physically acceptable and experienced personnel in time of national emergency; to provide incentives for armed forces personnel to undertake military service and remain in that service for a full career; and to provide military physicians and dentists exposure to the total spectrum of demographically diverse morbidity necessary to support professional training programs and ensure professional satisfaction for a medical service career.” All servicemembers and their family members are eligible for medical care under the TRICARE system. This system provides free medical and dental care to the servicemember, and free or low cost medical and dental care to the servicemember’s dependents. For more information on this benefit, see CRS Report RL33537, Military Medical Care: Questions and Answers, by Don J. Jansen. Annual Leave 10 USC 701704; 37 USC 501 “To authorize members of the uniformed services to take a specified number of days of leave of absence, or vacation, for rest and relaxation away from their respective duty stations; to allow the accumulation for later use of earned leave that cannot be currently used because of military, or other, exigencies; and to authorize cash payments as reimbursement for accrued leave remaining unused at the expiration of a member’s term of service.” All servicemembers are entitled to 30 days of annual leave per year (includes leave taken on weekends, holidays, or other regular days off). Typically, a maximum of 60 days may be accrued, although under certain circumstances up to 120 days may be accrued. Leave in excess of the allowable limit is forfeited at the end of the fiscal year. Under limited circumstances, servicemembers may receive a cash payment in lieu of their unused leave (see 37 USC 501). Life Insurance 38 USC 1965-1980 “To make life insurance available to members of the uniformed services at a reasonable cost.” Available to all servicemembers, though they may opt to not purchase it. Provides up to $400,000 in life insurance coverage and $100,000 traumatic injury coverage for the servicemember; up to $100,000 in coverage for spouse is also available. Servicemembers normally pay the costs for this coverage, but the government reimburses the premiums for those serving “in the theater of operations for Operation Enduring Freedom or Operation Iraqi Freedom” (37 USC 437). Click here for current SGLI rates. CRS-4 Name Statutory Authority Purposea Description Commissary 10 USC 2481-85; 10 USC 106164 “To allow items of convenience and necessity— especially items of subsistence—to be made available for purchase by military personne1 at convenient locations and reasonable prices.” Subsidized grocery stores on military bases around the world. The Defense Commissary Agency estimates average savings of about 30% compared to commercial stores, though the savings would be less if compared only to discount chains. Exchange 10 USC 2481 “As a military resale and category C revenueproducing morale, welfare, and reaction (MWR) activity, the armed services exchanges have the dual mission of providing authorized patrons with articles of merchandise and services and generating nonappropriated fund (NAF) earnings.” Retail stores (furniture, electronics, clothing, jewelry, etc.) on military bases around the world. They do not receive direct subsidies like commissaries, but do receive some indirect subsidies in the form of waived or reduced costs for utilities, rent, and base services. a. CRS-5 All entries in the “Purpose” column are taken verbatim from Military Compensation Background Papers, 11th Edition, 2011. Military Pay: Key Questions and Answers Basic Pay For most servicemembers, basic pay is the largest element of the compensation they receive in their paycheck and typically accounts for about two-thirds of an individual’s RMC. All members of the armed forces receive basic pay, although the amount varies by pay grade (rank) and years of service (also called longevity). Table 2 provides illustrative examples of basic pay rates. Basic Allowance for Housing All servicemembers are entitled to either government-provided housing or a housing allowance, known as basic allowance for housing (BAH) for those living within the United States or Overseas Housing Allowance (OHA) for those living outside of the United States. Roughly onethird of servicemembers receive government-provided housing (in the form of barracks, dormitories, ship berthing, or government-owned family housing), with the remainder receiving BAH or OHA to offset the costs of the housing they rent or purchase in the civilian economy. The amount of BAH or OHA a servicemember receives is based on three factors: paygrade (rank), geographic location, and whether or not the servicemember has dependents.4 Paygrade and dependency status are used to determine the type of accommodation—or “housing profile”—that would be appropriate for the servicemember (for example, one-bedroom apartment, two-bedroom townhouse, or three-bedroom single family home). Geographic location is used to determine the average costs5 associated with each of these housing profiles. The average costs of these housing profiles are the basis for BAH rates, with some additional adjustments made on the basis of paygrade (that is, an E-7 without dependents will receive more than an E-6 without dependents, even though the appropriate housing profile for both of them is “two bedroom apartment”). As a result of this methodology, BAH rates are much higher in some areas than others, but servicemembers of similar paygrade and dependents status should be able to pay for roughly comparable housing regardless of their duty location.6 Table 2 provides illustrative examples of how much BAH servicemembers receive annually. Basic Allowance for Subsistence Nearly all servicemembers receive a monthly payment to defray their personal food costs (those who do not receive BAS—for example, enlisted personnel in basic training—receive government-provided meals).7 This is known as basic allowance for subsistence (BAS). BAS is 4 A dependent is defined to include a spouse, unmarried children under 21 (or older in some circumstances), certain parents dependent on the servicemembers, and certain individuals placed in the legal custody of the servicemember. See 37 USC 401 for the complete definition. Note that for the purposes of BAH rates, no distinction is made between a servicemember with one dependent and a servicemember with multiple dependents. The only distinction is whether or not the servicemember has dependents. 5 Until 2015, BAH rates factored in the average costs of rental housing rates, utilities, and renter’s insurance in a wide array of housing markets. In 2015, DOD eliminated the cost of renter’s insurance from the calculation. 6 For a more detailed description of how BAH rates are calculated, see the Department of Defense’s BAH Primer, available here: http://www.defensetravel.dod.mil/Docs/perdiem/BAH-Primer.pdf . For a complete listing of BAH rates, see these tables: http://www.defensetravel.dod.mil/site/pdcFiles.cfm?dir=/Allowances/BAH/PDF/ 7 Historically, enlisted personnel did not receive BAS except in specific circumstances; rather, they were normally provided free meals in government dining facilities. This changed in 2002, and enlisted personnel now receive BAS except in limited circumstances. However, if a servicemember receiving BAS elects to eat in a government dining facility, he or she must pay for the meal. Congressional Research Service 6 Military Pay: Key Questions and Answers provided at a flat rate: In 2015, enlisted personnel receive $367.92 a month, while officers receive $253.38 a month.8 There have been calls in the past to merge BAS with basic pay to reduce the complexity of military compensation and the need for BAS computations each year. Federal Tax Advantage Certain types of military compensation are not subject to federal income tax, thus generating a tax benefit for servicemembers. The various types of military pay—basic pay, special pay, and incentive pay—are considered part of gross income and are usually subject to federal income tax.9 Military allowances, on the other hand, are generally not considered part of gross income and are not subject to federal income tax (nor are the various in-kind benefits of the military—for example, government housing, health care, fitness centers, subsidized grocery stores).10, 11 RMC considers only the tax advantage provided by the exemption of BAH/OHA and BAS from gross income. The precise value of the federal tax advantage for an individual servicemember will vary depending on his or her unique tax situation. Compensation Elements Not Included in RMC RMC does not include a wide array of compensation elements: special pays and bonuses, reimbursements, educational assistance, deferred compensation (i.e., an economic valuation of future retired pay), or any estimate of the cash value of non-monetary benefits such as health care, child care, recreational facilities, commissaries, and exchanges. As the value of these forms of compensation can be very substantial, RMC should not be considered a measure of total military compensation. 8 Enlisted personnel receive a higher BAS than officers. Historically, the government always provided enlisted personnel with meals or a cash allowance to purchase suitable meals. The government did not always take that position with officers; sometimes they were given a subsistence allowance, sometimes they were expected to pay for their own meals out of their regular pay. Enlisted BAS, then, has historically been intended to cover the full cost of meals for the servicemember; officer BAS has not been. 9 Although, these types of pay are exempt from federal taxation if earned in a combat zone by enlisted personnel and warrant officers; for officers, these types of pay are exempt from federal taxation up to the maximum amount of enlisted basic pay plus the amount of imminent danger pay. 10 This exemption, which reflects the long-standing exclusion of certain military benefits from gross income, was codified in the Internal Revenue Code (26 U.S.C. 134) by the Tax Reform Act of 1986 (P.L. 99-514). For a detailed discussion on these topics, see the Military Compensation Background Papers, 7th edition, pages 197-206, and especially pages 873-883, available here: http://www.loc.gov/rr/frd/pdf-files/Military_Comp-2011.pdf . Table 2 of this IRS publication is also helpful: http://www.irs.gov/pub/irs-pdf/p3.pdf .The exception to the general non-taxability of allowances is the CONUS Cost of Living Allowance (COLA), since it was created after the 1986 Tax Reform Act. 11 26 USC 134 reads, in part, as follows: § 134. Certain military benefits. (a) General rule. Gross income shall not include any qualified military benefit. (b) Qualified military benefit. For purposes of this section-(1) In general. The term "qualified military benefit" means any allowance or in-kind benefit (other than personal use of a vehicle) which-(A) is received by any member or former member of the uniformed services of the United States or any dependent of such member by reason of such member's status or service as a member of such uniformed services, and (B) was excludable from gross income on September 9, 1986, under any provision of law, regulation, or administrative practice which was in effect on such date (other than a provision of this title). Congressional Research Service 7 Military Pay: Key Questions and Answers Table 2. Average Regular Military Compensation for Selected Paygrades (2014 Data / assumes all cash pay; e.g. BAH instead of government quarters) Pay Grade E-1 E-5 E-8 O-1 O-4 O-6 Average Annual Basic Pay Average Annual Housing Allowance Average Annual Subsistence Allowance Estimated Average Annual Federal Tax Advantage Private (Army and Marine Corps) Seaman Recruit (Navy) Airman Basic (Air Force) $18,378 $15,474 $4,291 $3,455 $41,598 Sergeant (Army and Marine Corps) Petty Officer Second Class (Navy) Staff Sergeant (Air Force) $33,323 $17,268 $4,291 $5,278 $60,161 Master Sergeant or First Sergeant (Army and Marine Corps) Senior Chief Petty Officer (Navy) Senior Master Sergeant or First Sergeant (Air Force) $59,113 $22,563 $4,289 $5,029 $90,995 Second Lieutenant (Army, Air Force and Marine Corps) Ensign (Navy) $35,870 $16,097 $2,955 $4,558 $59,480 Major (Army, Air Force and Marine Corps) Lieutenant Commander (Navy) $84,062 $26,742 $2,955 $8,045 $121,803 Colonel (Army, Air Force and Marine Corps) Captain (Navy) $123,079 $31,192 $2,955 $11,508 $168,734 Rank Average Annual RMC Source: Department of Defense, Selected Military Compensation Tables, 1 January 2014, B3. Estimated average annual federal tax advantage computed using the standard deduction and 2014 tax rates; actual annual tax advantage of servicemembers will vary based on their unique tax situation. 3. How Are Each Year’s Increases in Basic Pay, BAH, and BAS Computed? Mentions of the “military pay raise” are almost always references to the annual increase in basic pay. The statutory formula for calculating each year’s pay raise is discussed below, but basic pay is only one element of RMC. BAH and BAS are also subject to periodic adjustment, although the typically do not receive as much attention as increases in basic pay. Basic Pay: Increases Are Linked to Increases in the Employment Cost Index (ECI) Section 1009 (c) of Title 37 provides a permanent formula for an automatic annual increase in basic pay that is indexed to the annual increase in the Employment Cost Index (ECI) for “wages and salaries, private industry workers.” For 2000-2006, the law required the military raise to be equal to the ECI increase plus an additional one half percentage point (i.e., if the ECI annual Congressional Research Service 8 Military Pay: Key Questions and Answers increase were to be 3.0%, the military raise would be 3.5%). For 2007 and onwards, the law required the raise be equal to the ECI (although Congress continued to enact increases above the ECI through 2010). The automatic adjustment is tied to the increase in the ECI from the 3rd Quarter of the third preceding year to the 3rd Quarter of the second preceding year. For example, in the 12-month period between the quarter which ended in September 2010 and the quarter which ended in September 2011, the ECI increased by 1.7%. Hence the pay raise for 2013, as calculated by the statutory formula, was 1.7%. This methodology means there is a substantial lag between increases in the ECI and increases in basic pay; the lag appears to be related to the stages of the federal budget process.12 However, under subsection (e) of this statute, the President can specify an alternative pay adjustment that supersedes the automatic adjustment. President Obama invoked this option with regards to the 2014 and 2015 pay raises. Additionally, Congress can pass legislation to specify the annual pay raise, which would override the automatic adjustment and/or any presidential adjustment if it were enacted into law. Congress Usually Sets the Amount of the Military Pay Raise, Although This Has Become Less Common In Recent Years Despite the statutory formula, which could operate each year without any further action, Congress almost always legislated a particular percentage increase in military pay every year until quite recently. For the pay raises effective in calendar years 1981 to 2010, the only one that Congress did not specify in law was the one which took effect in 1983. This pattern has changed in more recent years, with no general pay raise provision enacted for calendar years 2011, 2012, 2014, and 2015, thereby allowing the permanent formula or the presidential alternative adjustment to go into effect. However, even when the statutory formula is overridden, it remains important in determining the pay adjustment as it provides a benchmark around which alternatives are developed and debated. Basic Allowance for Housing: Increases are Linked to Increases in Housing Costs Basic Allowance for Housing is paid to servicemembers living in the United States who are not provided with government quarters.13 By law, the Secretary of Defense sets the BAH rates for localities, known as military housing areas (MHAs), throughout the United States. However, the law requires the Secretary to set the rates “based on the costs of adequate housing determined for the area” and ties this determination to “the costs of adequate housing for civilians with comparable income levels in the same area.”14 12 In other words, the 1.7% increase described above informed the FY2013 budget request, which was being developed in the fall of 2011 and submitted to Congress in February of 2012, ultimately leading to passage of the FY2013 National Defense Authorization Act in late 2012, just prior to the day (January 1, 2013) that the 2013 pay raise would go into effect. 13 Those servicemembers living overseas and not provided with government quarters receive OHA. The adjustment mechanism for OHA is similar to that of BAH. 14 37 U.S.C. 403(b). Congressional Research Service 9 Military Pay: Key Questions and Answers To determine the cost of adequate housing, DOD conducts an annual15 survey of rental costs in each of the MHAs.16 Rental costs are collected for various types of housing, including apartments, townhouses, and single‐family units of varying bedroom sizes. Costs for utilities are also collected.17 These annual surveys are used to determine how much housing costs have increased or decreased in each MHA. If costs in a given MHA increase, the BAH rates for that locality are adjusted upward accordingly at the start of the next calendar year. If costs in a given MHA decrease, the BAH rates are adjusted downward. However, in the case of a downward adjustment, a “save pay” provision on the BAH statute prevents the decrease from applying to individuals currently assigned to that locality: “So long as a member of a uniformed service retains uninterrupted eligibility to receive a basic allowance for housing within an area of the United States, the monthly amount of the allowance for the member may not be reduced as a result of changes in housing costs in the area or the promotion of the member.”18 Thus, only personnel newly assigned to the area receive the lower payment. Two additional points are worth mentioning. First, as increases in BAH are tied to increases in local housing costs, they are not affected by the annual percentage increase in the ECI. Thus, the average increase in BAH is almost always different than the increase in basic pay. Second, in 1996, housing allowances were estimated to cover about 80% of housing costs.19 Subsequent statutory changes eliminated the “out-of-pocket” portion by 2005.20 However, the FY2015 National Defense Authorization Act allowed the Secretary of Defense to reduce BAH payments by 1% of the national average monthly housing cost. Additionally, the Department of Defense has indicated it will no longer consider renter’s insurance in its BAH calculations starting in 2015. This will have the effect of reducing BAH rates by roughly an additional 1% (although DOD has indicated that the “save pay” provision discussed above will apply)21. 15 There have been occasional proposals to survey the housing costs on which BAH is based more frequently than once a year. These proposals typically occur when housing costs or utility costs are rising rapidly. 16 For more information on this process, see the Defense Travel Management Office’s “A Primer on the Basic Allowance for Housing (BAH),” available here: http://www.defensetravel.dod.mil/Docs/perdiem/BAH-Primer.pdf 17 Up until 2014, costs for renter’s insurance were also collected. However, DOD recently indicated that it will no longer consider renter’s insurance in its BAH calculations. Presumably, this means DOD will no longer collect data on renter’s insurance. 18 37 U.S.C. 403(b)(6). An analogous provision for OHA is provided in 37 U.S.C. 403(c)(2). 19 “In creating the BAQ and the Variable Housing Allowance (VHA) [the predecessors to BAH], Congress intended to cover 85 percent of service members housing costs. In reality though, housing allowances only covered approximately 80 percent of service members' total housing expenses in 1996. In an effort to close that gap, the Department funded a 3.0 percent increase in housing allowances in 1997, and Congress added an additional 1.6 percent. This will lower outof-pocket housing costs to approximately 19% percent of a service member's total costs, the lowest percentage since before 1987.” Testimony of Fred Pang, Assistant Secretary of Defense for Force Management Policy, before the House National Security Committee, Military Personnel Subcommittee, March 14, 1997. 20 For more information on this topic, see Department of Defense, Military Compensation Background Papers, 7th edition, 2011, pp. 170-173, available here: http://www.loc.gov/rr/frd/pdf-files/Military_Comp-2011.pdf 21 “Two changes were made to BAH rate computations for 2015: renter’s insurance, which contributed an average of one percent to rates, was eliminated, and the Fiscal Year 2015 National Defense Authorization Act reduced housing rates on average one percent for service members. However, individual rate protection for service members remains an integral part of the BAH program. This means that even if BAH rates decline—including through the elimination of renter’s insurance and the reduction in the calculated rate—a service member who maintains uninterrupted BAH eligibility in a given location will not see a rate decrease. This ensures that service members who have made long-term commitments in the form of a lease or contract are not penalized if local housing costs decrease.” DOD News, “DoD Releases 2015 Military Pay and Compensation Rates,” available here: http://www.defense.gov/news/newsarticle.aspx?id=123873 Congressional Research Service 10 Military Pay: Key Questions and Answers Basic Allowance for Subsistence: Increases are Linked to Increases in Food Costs BAS is paid at a uniform rate to all enlisted personnel, and at a uniform but lower rate for all officers. By law, BAS is adjusted each year according to a formula which is linked to changes in food prices. The increase is identical to “the percentage increase in the monthly cost of a liberal food plan for a male in the United States who is between 20 and 50 years of age over the preceding fiscal year, as determined by the Secretary of Agriculture each October 1.”22 BAS rates rose 2.9% in 2015, reflecting a 2.9% increase in the cost of the food plan mentioned above between September 30, 2013 and September 30, 2014. 4. What Have Been the Annual Percentage Increases in Active Duty Military Basic Pay Since 1994? What Were Each Year’s Major Executive and Legislative Branch Proposals and Actions on the Annual Percentage Increase in Military Basic Pay? The following subsections itemize action on the basic pay increase going back to 1994. Unless otherwise noted, all increases were proposed to be effective on January 1 of the year indicated in bold. 2015. Statutory Formula: 1.8%. Administration request: 1.0%. The House version of the FY2015 NDAA contained no statutory provision to specify the rate of increase in basic pay, although the report accompanying it stated that the committee supported a 1.8% increase; it also included a provision to prevent general and flag officers from receiving any increase in basic pay in 2015. The Senate committee-reported version contained a provision waiving the automatic adjustment of 37 U.S.C. 1009 and setting the pay increase at 1.0% for servicemembers, but excluded generals and admirals. On August 29, President Obama sent a letter to Congress invoking 37 U.S.C. 1009(e) to set the pay raise for 2015 at 1.0%. No general pay raise provision included in the final version of the NDAA, thereby leaving in place the 1.0% increase specified by President Obama (lower than the 1.8% ECI), but section 601 of the NDAA prevented the pay increase from applying to generals and admirals. Final increase: 1% across-the-board, excluding generals and admirals. 2014. Statutory Formula: 1.8%. Administration request: 1.0%. The House version of the FY2014 NDAA contained no provision to specify the rate of increase in basic pay, while the Senate committee-reported bill specified an increase of 1%. On August 30, President Obama sent a letter to Congress invoking 37 U.S.C. 1009(e) to set the pay raise for 2014 at 1.0%. No provision included in the final version of the NDAA, thereby leaving in place the 1.0% increase specified by President Obama (lower than the 1.8% ECI). Final increase: 1% across-the-board. 2013. Statutory Formula: 1.7%. Administration request: 1.7%. The House version of the FY2013 NDAA supported a 1.7% across-the-board pay raise. The Senate bill contained no statutory language. Final increase: 1.7% across-the-board. 22 37 U.S.C. 402(b)(1)(B). Congressional Research Service 11 Military Pay: Key Questions and Answers 2012. Statutory Formula: 1.6%. Administration request: 1.6%. The House version of the FY2012 NDAA supported a 1.6% across-the-board pay raise, equal to the ECI. For the second consecutive year, both the Senate-reported bill and the final version were silent on the pay raise issue. As a result, the statutory formula became operative with an automatic January 1, 2012 across-theboard raise equal to 1.6%. Final increase: 1.6% across-the-board. 2011. Statutory formula: 1.4%. Administration request:1.4%. The House version of the FY2011 NDAA supported a 1.9% across-the-board pay raise, 0.5% above the ECI. Both the Senatereported bill and the final bill were silent on the pay raise issue. As a result, the statutory formula became operative with an automatic across-the-board raise of 1.4%; equal to the ECI. Final increase: 1.4% across-the-board. 2010. Statutory formula: 2.9%. Administration request: 2.9%. Final increase: 3.4% across-theboard. 2009. Statutory formula: 3.4%. Administration request: 3.4%. Final increase: 3.9% across-theboard. 2008. Statutory formula: 3.0%. Administration request: 3.0% across-the-board. Final version: 3.5% across-the-board. The presidential veto of the initial FY2008 NDAA resulted in a 3.0% pay raise taking effect on January 1, 2008 (statutory formula) with the remaining 0.5% being made retroactive to January 1, 2008 upon enactment of the final version of the FY2008 NDAA (P.L. 110-181). Final increase: 3.5% across-the-board. 2007. Statutory formula: 2.2%. The statutory formula for 2007 was based solely on the ECI and not a rate 0.5% higher than the ECI that had been specified for 2000-2006 . Administration request: 2.2% . Final increase: 2.2% across-the-board but with an additional April 1, 2007 targeted pay raise that would be as high as 8.3 percent for some warrant officers and range from 2.5 percent for E-5s to 5.5 percent for E-9s.23 2006. Statutory formula: 3.1%. Administration request: 3.1% across-the-board. Final increase: 3.1% across-the-board. 2005. Statutory formula: 3.5%. Administration request: 3.5%. Final increase: 3.5% across-theboard. 2004. Statutory formula: 3.7%. Administration request: Average 4.1%; minimum 2.0%; maximum of 6.5%. Final increase: 3.7% minimum, 4.15% average, 6.25% maximum for some senior NCOs (P.L. 108-136). 2003. Statutory formula: 4.1%. Administration request: minimum 4.1%; average 4.8%; between 5.0% and 6.5%. for some mid-level and senior noncommissioned officers, warrant officers, and mid-level commissioned officers,. Final increase: Identical to the Administration request (P.L. 107-314). 2002. Statutory formula: 4.6%. Administration request: numerous figures for the “Administration request” were mentioned in the pay raise debate, depending on when and which agency produced 23 Maze, Rick, “DoD seeks targeted raises of up to 8.3 percent,” Army Times, March 20, 2005. Congressional Research Service 12 Military Pay: Key Questions and Answers the figures. In general, however, they all proposed increases of at least 5% and no more than 15% (the latter applying only to a very few individuals), depending on pay grade and years of service; the average increase was 6.9%. Final increase: Between 5 and 10%, depending on pay grade and years of service (P.L. 107-107).24 2001. Statutory formula: 3.7%. Administration request: 3.7%. Final increase: 3.7% across-theboard, effective January 1, 2001, plus additional raises of between 1.0 and 5.5% for mid-grade officer and enlisted personnel, to be effective July 1, 2001( P.L. 106-398). 2000. Statutory formula: 4.8% (based on the change to the statutory formula; the original statutory formula would have led to a proposed raise of 3.8%). Administration request: 4.4% on January 1, 2000, plus increases averaging an additional 1.4% for mid-grade officer and enlisted personnel, effective July 1, 2000. Final increase: 4.8% on January 1, 2000, plus increases averaging an additional 1.4% for mid-grade officer and enlisted personnel, effective July 1, 2000 (P.L. 106-65). 1999. Statutory formula: 3.1%. Administration request: 3.6%. The House approved 3.6%, or whatever percentage increase was approved for federal GS civilians, whichever was higher. The Senate approved 3.6%. The final version accepted the House provision. Final increase: 3.6%, as GS civilians also received 3.6% (P.L. 105-261). 1998. Statutory formula: 2.8%. Administration request: 2.8%. Final increase: 2.8% (P.L. 105-85). 1997. Statutory formula: 2.3%. Administration request: 3.0%. The House and Senate versions of the NDAA both provided for a 3.0% increase. Final increase: 3.0% (P.L. 104-201). 1996. Statutory formula: 2.4%. Administration request: 2.4%. Final increase: 2.4% (P.L. 104106). 1995. Statutory formula: 2.6%. Administration request: 1.6%. Final increase: 2.6% (P.L. 103337). 1994. Statutory formula: 2.2%. Administration request: No increase; military (and civil service) pay would have been frozen in FY1994. The Administration also proposed limiting future civil service pay raises — and thus military pay raises, given the statutory linkage at that time of the two compensation systems — to one percentage point less than that provided by the existing statutory formula. These proposals were not adopted. Final increase: 2.2% (P.L. 103-160). 5. What Is An “Adequate” Level of Military Pay? Since the end of the draft in 1972-1973, the “adequacy” of military pay has tended to become an issue for Congress if it appears that: 24 The 2002 increase remains the largest across-the-board percentage raises since that of FY1982, which took effect on October 1, 1981. The latter was a 14.3% across-the-board raise, which followed an 11.7% raise the previous year, FY1981, resulting in a two-year raise of almost 28%. This was principally in response to the high inflation of the late 1970s. Congressional Research Service 13 Military Pay: Key Questions and Answers • The military services are having trouble recruiting enough new personnel, or keeping sufficient career personnel, of requisite quality; or • The standard of living of career personnel is perceived to be less fair or equitable than that of demographically comparable civilians (in terms of age, education, skills, responsibilities, and similar criteria). The first issue is an economic inevitability on at least some occasions. In the absence of a draft, the services must compete in the labor market for new enlistees and—a fact often overlooked— have always had to compete in the labor market the retain the more experienced individuals who make up the career force.25 When unemployment is low, employment opportunities in the civilian world abound and military recruiting is more difficult; when unemployment is high, military service becomes a more attractive alternative, and military recruiting is easier. In recent years, recruiting and retention in the armed forces have both been quite strong,26 hence weakening the case for compensation increases based on competition with the civilian economy and generating discussion of possible compensation cuts and/or restructuring. However, some observers point out that the civilian economy is still recovering from a severe recession, and that the Air Force, Marine Corps, and Army are all in the midst of substantial drawdowns, which makes it much easier for those military services to post strong recruiting and retention performances. While recruiting and retention will likely remain strong in the next few years due to force reductions and sluggish competition from the civilian economy, challenges might arise once these factors fade.27 The second situation is frequently stated in moral or ethical terms. Proponents of this viewpoint argue that, even if quantitative indexes of recruiting and retention appear to be satisfactory, the crucial character of the military’s mission of national defense, and its acceptance of the professional ethic that places mission accomplishment above survival, demands certain enhanced levels of compensation. However, the compensation increases that occurred in the 2000s have led many analysts to conclude that military compensation is currently quite robust in comparison to civilian counterparts. 6. Is There a “Pay Gap” Between Military and Civilian Pay? Do Military Personnel Make More or Less Than Their Civilian Counterparts? The issue of a military-civilian “pay gap” raises several questions: 25 Unlike civilian enterprises, the military services generally do not recruit mid- or senior-level personnel from outside the existing military workforce. Rather, they rely on promotions from within to fill these positions. 26 See CRS Report RL32965, Recruiting and Retention: An Overview of FY2012 and FY2013 Results for Active and Reserve Component Enlisted Personnel, by Lawrence Kapp. 27 Specifically, recruiting and retention requirements could increase as the drawdown nears completion in order to stabilize the force at its desired personnel strength level. Meeting these requirements might also be made more difficult due to increased competition from a more robust economy, fewer resources allocated to recruiting and retention, or the development of negative attitudes about military career prospects and job satisfaction. If such a scenario were to occur, its impact on recruiting and retention could become evident in the next three to five years. For more information on the recruiting and retention issues of the 1990s, see CRS Report RL31297, Recruiting and Retention in the Active Component Military: Are There Problems?, by Lawrence Kapp. Congressional Research Service 14 Military Pay: Key Questions and Answers • How can the existence of a gap be determined and the gap be measured? • Is there a gap, with civilians or the military being paid more? If so, how much of a gap? • If there is a gap, does that in itself require action? A wide range of studies over the past several decades have attempted to compare military and civilian (both federal civil service and private sector) compensation. In general, the markedly different ways in which civilian public and private sector compensation and benefit systems are structured, compared to that of the armed forces, make it difficult to validate any generalizations about whether there is a “gap” between military and civilian pay.28 Measuring and Confirming a “Gap” It is extremely difficult to find a common index or indicator to compare the dollar values of military and civilian compensation. First, military compensation includes numerous separate components, whose receiving population and taxability vary widely. Which of these, if any, should be included in a military-civilian pay comparison? Furthermore, total military compensation includes a wide range of non-cash benefits—health care, commissary access, recreational facilities—as well as a unique deferred compensation package. Few civilians work in organizations where analogous benefits are provided. Attempts to facilitate a comparison by assigning a cash value to non-cash benefits almost always founder on the large number of debatable assumptions that must be made to generate such an estimate. Second, it is also extremely difficult to establish a comparison between military ranks and pay grades on the one hand and civilian jobs on the other. The range of knowledge, supervision, and professional judgment required of military personnel and civilians performing similar duties in a standard peacetime industrial or office milieu may be roughly equivalent. However, when the same military member’s job in the field and in combat is concerned, comparisons become difficult. Third, generally speaking, the conditions of military service are frequently much more arduous than those of civilian employment, even in peacetime, for families as well as military personnel themselves. This aspect of military service is sometimes cited as a rationale for military compensation being at a higher level than it otherwise might be. On the other hand, the military services all mention travel and adventure in exotic places as a positive reason for enlistment and/or a military career, so it may be misleading to automatically assume that this is always a liability. Fourth, comparisons between different sets of compensation statistics, and the use of these comparisons to determine what military pay should be, can yield very different results. 28 Some advocates for federal civil servants argue that federal civilian pay lags behind private sector pay, which in turn leads some people to infer that military pay lags behind private sector pay (given the past linkage between civil service and military pay percentage increases). A separate debate, more common about a decade ago, was over “pay parity” between the percentage increases in military and federal civil service pay. The issue has been whether the civil service should get a percentage raise identical to that of the military, or whether the military should get a higher raise because of (1) the much greater degree of danger and hardship military service entails, compared to most civilian employment, especially in time of war, and (2) the need to cope with actual or forestall potential military recruiting and retention problems. Congressional Research Service 15 Military Pay: Key Questions and Answers Comparing dollar amounts may lead to different conclusions than comparing the annual increases in pay for each position. The percentage increase in pay over different time periods is more often than not very different. Different indexes with different components can be used to determine compensation changes. Finally, the level of specificity used in a pay comparison can lead to sharply differing results, especially when the comparison is between private sector and federal pay as a whole, both civil service and military. For instance, Army colonels may, according to some indexes, be paid roughly as much as federal civil service GS-15s, or as much as private sector managers with certain responsibilities. Thus, those occupational specialties that are highly paid in the private sector—health care, information technology, some other scientific and engineering skills, are examples—are frequently paid considerably less in the military or in the civil service. Other common subcategories for comparison, in addition to occupational skill, include age, gender, years in the labor force, and educational levels. As noted by the Congressional Budget Office:29 Comparing compensation in the military and civilian sectors can be problematic. One obvious limitation is that such comparisons cannot easily account for different job characteristics. Many military jobs are more hazardous, require frequent moves, and are less flexible than civilian jobs in the same field. Members of the armed forces are subject to military discipline, are considered to be on duty at all times, and are unable to resign, change jobs at will or negotiate pay. Military personnel also receive extensive training, paid for by the government. Family support programs are generally more available in the military compared with civilian employers. Intangible rewards, such as a shared sense of purpose, may be higher among military personnel as well. Quantifying those elements among military and civilian personnel is extremely difficult. Estimates of a Military-Civilian Pay Gap Various comparisons of military and civilian compensation in have been cited either to illustrate a gap that favors civilian pay levels, to refute the existence of such a gap or, more recently, to show that the pay gap favors the military. Many of these reports lack precision in identifying what aspects of military pay were compared with civilian pay; which indexes were used to make the comparison, or the length of time covered by the comparison. One common estimate, which indicates there is a pay gap in favor of civilians, asserts that rough pay parity existed between civilian and military personnel in 1982, but that increases since then in military basic pay have not kept up with increases in civilian pay (as measured by the ECI). As a result, there has been a pay gap of between 2% and 13% over the past several decades.30 However, using the same starting date (1982) but considering RMC rather than just basic pay, the Congressional Budget Office came to a much different conclusion: With RMC substituted for basic pay in the comparison, the total growth in military compensation since 1982 has exceeded the growth in the ECI for private-sector wages and 29 “Evaluating Military Compensation”, Congressional Budget Office, June, 2007, p.2. See, for example, the cumulative pay gap chart in “The Bottom Line – Slow the Growth or Pay Caps – You Choose,” Military Officer’s Association, October 18, 2013, available here: http://www.moaa.org/MROctBottomLine/ . 30 Congressional Research Service 16 Military Pay: Key Questions and Answers salaries by about 11 percent...Including the value of noncash and deferred benefits would probably add to that cumulative difference. 31 Another approach to estimating a pay gap attempts to compare actual compensation levels of military personnel to civilians with similar education and experience, rather than comparing rates of compensation increase over time. For example, the 9th Quadrennial Review of Military Compensation (QRMC), published in 2002, compared the RMC of junior enlisted to the earnings of civilian high school graduates, middle grade NCOs with civilians with some college education, and senior enlisted personnel with civilians who are college graduates. It compared the RMC of officers to the earnings of civilians with bachelors or advanced degrees in professional or managerial occupations. Based on a separate body of research, it argued that “Pay at around the 70th percentile of comparably educated civilians has been necessary to enable the military to recruit and retain the quantity and quality of personnel it requires”32 and pointed out those groups of military personnel that fell short of this compensation goal. Several rounds of pay table reform were approved by Congress to address situations where servicemembers fell below the 70% mark. Additionally, general increases in basic pay higher than the rate of increase in the ECI (2000-2010) and the elimination of “out-of-pocket” housing expenses by 2005 pushed servicemember RMC up substantially in relation to their civilian counterparts. According to the 11th QRMC, by 2009 military compensation had substantially exceeded this goal: In 2009, average RMC for enlisted members exceeded the median wage for civilians in each relevant comparison group—those with a high school diploma, those with some college, and those with an associate’s degree. Average RMC for the enlisted force corresponded to the 90th percentile of wages for civilians from the combined comparison groups. For officers, average RMC exceeded wages for civilians with a bachelor’s or graduate-level degree. Average RMC for the officer force corresponded to the 83rd percentile of wages for the combined civilian comparison groups.33 While estimating the pay gap continues to be a challenge, the substantial increases in military pay in the 2000s have markedly improved the compensation of military personnel relative to their civilian counterparts. If There Is a Pay Gap, Does It Necessarily Matter? Some have suggested that the emphasis on a pay gap, whether real or not, is unwarranted and not a good guide to arriving at sound policy. They argue that the key issue is, or should be, not comparability of military and civilian compensation, but the competitiveness of the former. Absent a draft, the armed forces must compete in the labor market for new enlisted and officer personnel. The career force by definition has always been a “volunteer force,” and thus has always had to compete with civilian opportunities, real or perceived. Given these facts, some ask what difference it makes whether military pay is much lower, the same, or higher than that of civilians? If the services are having recruiting difficulties, then pay increases might be 31 Statement of Carla Tighe Murray, Senior Analyst for Military Compensation and Health Care, before the Subcommittee on Personnel Committee on Armed Services, United States Senate, “Evaluating Military Compensation,” April 28, 2010, p. 7, available here: http://www.cbo.gov/sites/default/files/04-28-MilitaryPay.pdf. 32 Department of Defense, 9th Quadrennial Review of Military Compensation, March 2002, p.xxiii, available here: http://militarypay.defense.gov/reports/qrmc/9th_QRMC_Report_Volumes_I_-_V.pdf. 33 Department of Defense, 11th Quadrennial Review of Military Compensation, June 2012, p.xvii, available here: http://militarypay.defense.gov/reports/qrmc/11th_QRMC_Main_Report_(290pp)_Linked.pdf. Congressional Research Service 17 Military Pay: Key Questions and Answers appropriate, even if the existing “gap” favors the military. Conversely, if military compensation is lower than equivalent civilian pay, and if the services are doing well in recruiting and retaining sufficient numbers of qualified personnel, then there might be no reason to raise military pay. The 11th QRMC voiced similar sentiments when it argued: A comparison between military and civilian wages does not, by itself, determine if military pay is at the optimal level. As previously noted, other factors are also at play including: recruiting and retention experiences and outlook; unemployment in the civilian economy; political factors, such as a wartime environment or risk of war; and the expected frequency and duration of overseas deployments. But the relative standing of military compensation provides context to help make decisions about RMC and other elements of the compensation system, such as those studied by the QRMC.34 7. What Additional Benefits Are Available For Military Personnel Serving in Iraq and Afghanistan? Members of the armed forces serving in Iraq or Afghanistan are entitled to various additional forms of compensation, outlined below. Those serving in nearby countries are often are eligible as well. Hostile Fire/Imminent Danger Pay Many military personnel serving in Iraq or Afghanistan are eligible for Hostile Fire Pay (HFP) or Imminent Danger Pay (IDP).35 HFP is paid at the rate of $225 per month; IDP is paid at an equivalent rate, but on a daily basis ($7.50 per day). The purpose of this pay is to compensate servicemembers for physical danger. An individual can collect either Hostile Fire Pay or Imminent Danger Pay, not both simultaneously. Iraq and Afghanistan are designated imminent danger locations; any servicemember in these locations is entitled to IDP by virtue of their presence. Many surrounding areas were formerly designated as imminent danger locations, but DOD revoked this designation in 2014.36 Those who qualify for hostile fire pay—for example, they are actually exposed to hostile fire or the explosion of a hostile mine—at any time in a given month receive the full $225 for that month Until recently, a full month of IDP was paid for serving in designated imminent danger area for any month or portion of a month. This meant that air crews, for example, could deploy to Afghanistan or Arabian Peninsula locations for several days, depart, and receive the full monthly special pay of $225; likewise, a servicemember arriving in an IDP location on the last day of the 34 Department of Defense, 11th Quadrennial Review of Military Compensation, June 2012, p.xvii, available here: http://militarypay.defense.gov/reports/qrmc/11th_QRMC_Main_Report_(290pp)_Linked.pdf 35 37 U.S.C. 310. DOD regulations distinguish between Hostile Fire Pay and Imminent Danger Pay, but both are derived from the same statute. 36 For example, DOD ended the imminent danger designation for Kuwait, Bahrain, Oman, Qatar, Saudi Arabia, United Arab Emirates, Kyrgyzstan, Tajikistan, Uzbekistan on May 31, 2014. For a list of all imminent danger locations, see Figure of this document: http://comptroller.defense.gov/Portals/45/documents/fmr/Volume_07a.pdf Congressional Research Service 18 Military Pay: Key Questions and Answers month received the full $225. This was changed by the FY2012 NDAA37 which now requires the IDP to be paid on a daily basis (i.e., $7.50 per day) . Hardship Duty Pay Military personnel serving for over 30 days in Iraq, Afghanistan, and certain surrounding countries are eligible for Hardship Duty Pay (HDP).38 HDP is compensation for the exceptional demands of certain duty. In the case of Iraq and Afghanistan, it is compensation for the austere conditions of the location. The rate for HDP in Iraq and Afghanistan is $100 per month.39 Family Separation Allowance Military personnel serving in Iraq, Afghanistan, and surrounding areas may be eligible for Family Separation Allowance (FSA).40 FSA provides a special pay for those servicemembers with dependents who are separated from their families for more than 30 days. The purpose of this pay is to “partially reimburse, on average, members of the uniformed services involuntarily separated from their dependents for the reasonable amount of extra expenses that result from such separation....”41 To be eligible for this allowance, U.S. military personnel must be separated from their dependents for 30 continuous days or more; but once the 30-day threshold has been reached, the allowance is applied retroactively to the first day of separation. The authorizing statute for FSA sets the rate at $250 per month. Per Diem Military personnel using military facilities and serving in Iraq, Afghanistan, and surrounding areas also receive per diem equivalent to $105 per month to cover incidental expenses. The rate is the same for all personnel. Combat Zone Tax Exclusion One of the more generous benefits for many of those serving in Iraq or Afghanistan, and certain surrounding areas,42 is the “combat zone tax exclusion.”43 Military personnel serving in direct support of operations in these combat zones are also eligible for the combat zone tax exclusion, as are those “hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone.”44 For enlisted personnel and warrant officers, this means that all compensation for 37 Section 616, P.L. 112-81, December 31, 2011. 37 U.S.C. 305. The maximum amount of HDP previously permitted by the statute was $300 per month; this maximum was increased to $750 per month by the FY2006 NDAA and then raised to $1,500 per month by the FY2008 NDAA. However, this figure is a cap; DOD has discretion to offer lesser amounts. 39 For a complete listing of HDP locations, see Figure 17-1 of this document: http://comptroller.defense.gov/Portals/45/documents/fmr/Volume_07a.pdf. 40 37 U.S.C. 427. 41 Department of Defense, Military Compensation Background Papers, 7th Edition, November 2011, p. 823, available here: http://www.loc.gov/rr/frd/pdf-files/Military_Comp-2011.pdf . 42 For a listing of areas that qualify for the combat zone tax exclusion, see http://www.irs.gov/uac/Combat-Zones. 43 26 USC 112. 44 26 U.S.C. 112; note that the hospitalization provision expires two years after the termination of combat activities in (continued...) 38 Congressional Research Service 19 Military Pay: Key Questions and Answers active military service in a combat zone is free of federal income tax. For commissioned officers, their compensation is free of federal income tax up to the maximum amount of enlisted basic pay plus any imminent danger pay received. While this benefit applies only to federal income tax, almost all states have provisions extending the benefit to their state income tax as well. In addition, military personnel who receive a reenlistment bonus while stationed in a combat zone do not have to pay federal income tax on any of the bonus. The amounts involved can be substantial, often in the tens of thousands of dollars, and sometimes over a hundred thousand dollars. Savings Deposit Program Another benefit available to those deployed to a combat zone45 is eligibility for the Savings Deposit Program. This program allows service members to earn a guaranteed rate of 10% interest on deposits of up to $10,000, which must have been earned in the designated areas. The deposit is normally returned to the servicemember, with interest, within 90 days after he or she leaves the eligible region, although earlier withdrawals can sometimes be made for emergency reasons. 8. What Benefits Are Available to the Survivors of Military Personnel Killed in Iraq or Afghanistan? Currently, the survivors (typically, spouses and children) of military personnel who die while serving in Operation Enduring Freedom (OEF) are eligible for a number of monetary and other benefits. These generally include: • A death gratuity of $100,000, payable within a few days of the death to assist families in dealing with immediate expenses. • Servicemembers’ Group Life Insurance (SGLI)46 of $400,000.47 • Disbursement of unpaid pay and allowances. • One year of government housing or BAH. • Three years of TRICARE coverage at the active duty dependent rate, followed by coverage at the retiree dependent rate (children remain covered as active duty family members until age 21). • Commissary and Exchange access. (...continued) the designated combat zone. 45 For a listing of areas that qualify for the combat zone tax exclusion, see http://www.irs.gov/uac/Combat-Zones. 46 All servicemembers are automatically enrolled in this benefit, which is paid for by an approximate $16 monthly deduction from pay, members may opt out or reduce coverage, but less than 1% do so. 47 The death gratuity and the SGLI maximum amount were raised substantially by the FY2005 Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief (P.L. 109-13). The death gratuity was raised from $12,420 to $100,000; and the maximum SGLI coverage was raised from $250,000 to $400,000. The 2006 NDAA applied the $100,000 death gratuity to all active-duty deaths (not just those that were combat-related) and made the payments retroactive to October 7, 2001. Congressional Research Service 20 Military Pay: Key Questions and Answers • Burial expenses. • One or more survivor benefit annuities (Social Security Survivor Benefits, DOD Survivor Benefit Plan, and/or Veterans Affairs Dependency and Indemnity Compensation; receipt of more than one annuity may require offsets between the annuities). Note, however, that each type of benefit described above has its own eligibility criteria. Survivors may, or may not, qualify for a given benefit based on their unique circumstances. For more detailed information on who qualifies for a given benefit, see the Department of Defense’s A Survivor’s Guide to Benefits.48 Author Contact Information Lawrence Kapp Specialist in Military Manpower Policy lkapp@crs.loc.gov, 7-7609 Barbara Salazar Torreon Information Research Specialist btorreon@crs.loc.gov, 7-8996 48 Available here: http://www.militaryonesource.mil/12038/Project%20Documents/MilitaryHOMEFRONT/Casualty%20Assistance/Survi vors%20Guide.pdf. See also: http://militarypay.defense.gov/reports/qrmc/. For the earlier legislative history of some of these benefits, monetary and non-monetary, see Office of the Secretary of Defense. Military Compensation Background Papers. 11th Edition, 2011. Congressional Research Service 21