Despite half-hearted calls for tax reform which might fix the increasingly ridiculous consequences of the U.S.’ drive to tax its Persons and make them file forms wherever they go on the planet, Congresscritters clearly prefer instead to introduce more and more stupid complexity-increasing loopholes to cut tax rates on their favoured groups and locales outside of the fifty states. Puerto Ricans and Guamanians have got their loopholes already, companies which fire Americans abroad and give their jobs to Americans in the Homeland have got John Duncan (R-TN) fighting on their behalf, and Marco Rubio (R-FL) was pounding the nationalistic drums earlier this month to let Olympic medal winners have some too.

Now, two (un)Representatives from opposite sides of the aisle have introduced competing sops for Department of Defense contractors and civilian employees. Of course, in the process, they have to make sure not to give any benefit to all those other whiners who have no good reason to be living outside the Greatest Country on Earth™ — a group of taxpayers known as Escaped Unpatriotic Renegades Opposed to Paying Equal Amounts, Now Living Overseas as Useless Tax-evaders (“EUROPEAN LOUTs”). That means more pages in the tax code and longer forms to go along with it. Are you excited yet?

One notable recent bill, John Tierney (D-MA)’s H.R. 6360, ostensibly provides for increased oversight of bids for military contracts. Of course, no modern piece of American legislation would be complete without some provisions to mess with the Interplanetary Revenue Code, and so Tierney included a Section 109 dealing with “Tax-treatment of certain civilian employees of Department of Defense in combat zones”. (Some of you may remember Tierney from his earlier efforts to eliminate the Foreign Earned Income Exclusion entirely in order to punish the oil industry).

Section 109 has three effects. Subsection (a) would modify 26 USC § 112. The title would change: “Certain combat zone compensation of members of the Armed Forces“, and the following subsection would be added at the end:

(4) CIVILIAN CONTRACTING EMPLOYEES OF DEPARTMENT OF DEFENSE—

(A) SERVICE IN COMBAT ZONE— Gross income does not include so much of compensation as does not exceed the maximum enlisted amount received for active service as a civilian employee of the Department of Defense serving in the acquisition workforce (as defined in section 1705(g) of title 10, United States Code) in support of the Armed Forces of the United States for any month during any part of which such employee—

(i) served in a combat zone,
(ii) was hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone, or
(iii) is in a missing status as a result of such service.

Clause (ii) shall not apply for any month beginning more than 2 years after the date of the termination of combatant activities in such zone.

(B) MISSING STATUS— For purposes of this paragraph, the terms ‘active service’ and ‘missing status’ have the respective meanings given to such terms by section 5561 of title 5 of the United States Code.

Subsection (b) of Tierney’s bill would sweeten the estate tax treatment of DoD civilian employees, by including them in 26 USC § 2201(b)‘s list of “qualified decedents” who get a concessionary top estate tax rate of 20% on amounts over ten million dollars, as compared to the normal rate of 35% on amounts over five million dollars provided for in 26 USC § 2001(c). And if that wasn’t enough, Subsection (c) would ensure that poor suffering telecommunications companies don’t have to pay excise taxes on phone calls by those employees, by tacking civilians onto the end of 26 USC § 4253(d)‘s existing exemption for phonecalls made by soldiers.

Perhaps the only good thing you can say about this bill is that its title doesn’t form some stupid acronym, unlike FATCAT, CUT Loopholes, or all the other garbage coming from the donkey side of the aisle. That’s not to excuse the elephant side, however; Tierney’s bill appears to be part of a game of one-upsmanship with Steven Palazzo (R-MS), who a week before had introduced H.R. 6341. Palazzo’s bill would allow DoD contractors to take the FEIE even when they went back home early due to downsizing and didn’t meet the FEIE’s “tax home” or “physical presence” tests. Specifically, it would add the following text to 26 USC § 911(d):

(A) IN GENERAL— The requirements of paragraph (4)(B) shall be treated as met by an employee of a United States Government contractor who, before meeting the requirements of paragraph (1), leaves the foreign country referred to in paragraph (4)(A) as a direct result of—

(i) a reduction in the number of personnel serving in a combat zone in such country as members of the Armed Forces of the United States,
(ii) a termination of the contract under which such contractor is performing services in a combat zone in such country or in direct support of operations of the Armed Forces of the United States in a combat zone in such country, or
(iii) the termination of such employee’s employment with the contractor on account of either of the foregoing.

Friends of Isaac Brock should not be particularly surprised to learn that according to OpenSecrets.org, Palazzo’s list of top donors has plenty of famous names from the military-industrial complex. And of course there’s also tax professionals (Deloitte at #2, KPMG at #5, American Institute of CPAs at #7, PWC at #8), and construction firms which do a lot of DoD contracting thrown into the mix for good measure.

If Palazzo’s bill passes, his donors will see the returns on their contributions almost immediately, as the U.S. starts withdrawing soldiers and civilians home from Iraq and Afghanistan — the military manufacturers and construction companies will face lower bills for tax equalization on employees sent home early, while the accountants will get a boom in new business giving presentations about the latest addition to the tens of thousands of pages of the tax code and its associated rules and regulations.

In short, it’s politics as usual in the United States of America. And that should be as good a signal as any to U.S. Persons abroad that the tax laws we face will continue their relentless drive towards ever more complexity, and our tax returns are only going to get thicker and uglier and more expensive to prepare.