Analysis of a Salary-Based Pay System for the Quadrennial Review of Military Compensation (QRMC) Conference Briefing
Abstract
This paper supports the goal of the Quadrennial Review of Military Compensation (QRMC) of understanding how a compensation system that combines basic pay, housing, and subsistence allowances into a single taxable "salary" would affect Service members' earnings and behavior as well as the readiness, cost, and tax-revenue implications of such a system. We undertook three lines of effort. First, we modeled the after-tax income effects of transitioning to a salary system. We found that any salary system that holds federal government costs constant will reduce Service members' aggregate after-tax income. Second, we used econometric models to estimate the likely responses of Service members to changes in after-tax income. We found no significant effect of state military tax exemptions on retention, suggesting that other factors are more influential than raw compensation changes. Third, we conducted focus groups with 740 Service members in every Service by visiting Active and Reserve Component installations in four states. Service members generally expressed strong skepticism of major military compensation system restructuring--they view the current system as imperfect, but "fair enough." Finally, we discuss other possible mechanisms--short of adopting a salary system--that could improve the efficiency and fairness of the current system.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2020
- Accession Number
- AD1106040
Entities
People
- David R. Graham
- James M. Bishop
- Jerome Bracken
- Joseph F. Adams
- Nancy M. Huff
- Stanley A. Horowitz
Organizations
- Institute for Defense Analyses