December 18, 2013

Senators Warner & Kaine Introduce Military Retirement Restoration Act

Will repeal and replace proposed cuts to military retiree benefits

WASHINGTON - U.S. Senators Mark R. Warner (D-VA) and Tim Kaine (D-VA) introduced legislation to repeal and replace the proposed $6 billion cut to military pensions included in the Bipartisan Budget Act. The compromise budget agreement, which passed the U.S. House of Representatives last week and is scheduled for a Senate vote today, would cut $6 billion over 10 years by reducing cost-of-living adjustments (COLA)  for working-age military retirees by 1 percent beginning in January 2015.   The Military Retirement Restoration Act would replace this provision with new legislation that could raise as much as $6.6 billion over ten years by preventing companies from avoiding U.S. taxes through the use of foreign tax havens.

“While the changes to military pension COLA increases may look insignificant to some, this is real money to a lot of families,” Sen. Warner said. “Virginians have served with honor in our military for generations, and I want to assure our servicemen and women that there is ample time to undo these changes before they take effect. I remain committed to pursuing a comprehensive deficit reduction package, but we should not unfairly single out our military families.”

“The Senate worked hard to pass a budget last March that did not contain reductions in COLA for military pensions because it was not the way we felt we should be dealing with the budget,” said Sen. Kaine. “It’s my hope that we’ll be able to undo these changes before they take effect in 2015. I’m proud to support this legislation and look forward to further reviewing the provision in the Armed Services Committee early next year, as Chairman Carl Levin has signaled.”

A bill summary and text are copied below.

Summary

Military Retirement Restoration Act - The Military Retirement Restoration Act would replace the cuts to military retiree benefits from the Bipartisan Budget Act by preventing companies from avoiding U.S. taxes by abusing tax havens.

  • Repeal the provision in the Bipartisan Budget Act (Section 403) that modifies the annual cost-of-living adjustment for working-age military retirees by making the adjustments equal to inflation minus one percent.  This provision, which is scheduled to go into effect in December 2015, would result in a benefit cut for working-age military retirees.  The Bipartisan Budget Act modifies the annual cost-of-living adjustment for working-age military retirees by making the adjustments equal to inflation minus one percent.  At age 62, the retired pay would be adjusted as if the COLA had been the full CPI adjustment in all previous years, and the service members would receive the full COLA from then on.  Service members would never see a reduction in benefits from one year to the next.  The provision would have saved approximately $6 billion over ten years.
  •  Prevent companies from avoiding U.S. taxes.  The repeal would be fully offset by stopping companies incorporated offshore but managed and controlled from the United States from claiming foreign status and avoiding U.S. taxes on their foreign income by treating them as U.S. domestic corporations for tax purposes.  This provision is identical to Section 103 of the Stop Tax Haven Abuse Act and is expected to raise over $6.6 billion over ten years.

Bill Language

SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Military Retirement Restoration Act’’.

SEC. 2. REPEAL OF REDUCTIONS MADE BY BIPARTISAN BUDGET ACT OF 2013.
Section 403 of the Bipartisan Budget Act of 2013 is repealed as of the date of the enactment of such Act. 

SEC. 3. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN THE UNITED STATES AS DOMESTIC CORPORATIONS.
(a) In General- Section 7701 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
`(p) Certain Corporations Managed and Controlled in the United States Treated as Domestic for Income Tax-
`(1) IN GENERAL- Notwithstanding subsection (a)(4), in the case of a corporation described in paragraph (2) if--
`(A) the corporation would not otherwise be treated as a domestic corporation for purposes of this title, but
`(B) the management and control of the corporation occurs, directly or indirectly, primarily within the United States,
then, solely for purposes of chapter 1 (and any other provision of this title relating to chapter 1), the corporation shall be treated as a domestic corporation.
`(2) CORPORATION DESCRIBED-
`(A) IN GENERAL- A corporation is described in this paragraph if--
`(i) the stock of such corporation is regularly traded on an established securities market, or
`(ii) the aggregate gross assets of such corporation (or any predecessor thereof), including assets under management for investors, whether held directly or indirectly, at any time during the taxable year or any preceding taxable year is $50,000,000 or more.
`(B) GENERAL EXCEPTION- A corporation shall not be treated as described in this paragraph if--
`(i) such corporation was treated as a corporation described in this paragraph in a preceding taxable year,
`(ii) such corporation--
`(I) is not regularly traded on an established securities market, and
`(II) has, and is reasonably expected to continue to have, aggregate gross assets (including assets under management for investors, whether held directly or indirectly) of less than $50,000,000, and
`(iii) the Secretary grants a waiver to such corporation under this subparagraph.
`(3) MANAGEMENT AND CONTROL-
`(A) IN GENERAL- The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as occurring primarily within the United States.
`(B) EXECUTIVE OFFICERS AND SENIOR MANAGEMENT- Such regulations shall provide that--
`(i) the management and control of a corporation shall be treated as occurring primarily within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the United States, and
`(ii) individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to-day responsibilities of the corporation described in clause (i).
`(C) CORPORATIONS PRIMARILY HOLDING INVESTMENT ASSETS- Such regulations shall also provide that the management and control of a corporation shall be treated as occurring primarily within the United States if--
`(i) the assets of such corporation (directly or indirectly) consist primarily of assets being managed on behalf of investors, and`(ii) decisions about how to invest the assets are made in the United States.'.
(b) Effective Date- The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act, whether or not regulations are issued under section 7701(p)(3) of the Internal Revenue Code of 1986, as added by this section.

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