An Error in the GOP Tax Law has brought New Attention to an old Problem for Military Families.
Republicans wrote their 2017 Tax Law so fast that the Senate Voted at 2am on a Version that still had Edits hand-scribbled in the Margins. They knew they would probably need to Fix a Few Mistakes at some point later on. Two years later, the Economic Boom the Law was supposed to Produce has Failed to Materialize, but the Mistakes have become very clear, and Lawmakers are still trying to Clean Up after themselves.
Elizabeth Davis of Stafford, Virginia, is one Person caught up in the mess. Davis normally Owes a few hundred Dollars around Tax time. This year, she found herself with a nearly $10,000 Bill thanks to wildly Increased Taxes on the Death Benefits she receives as a Military Widow.
Davis and her 11-year-old daughter have been receiving about $2,000 per month via Two kinds of Military Survivor Benefits since her Husband Matthew Davis, a Marine Corps First Lieutenant, was Killed by a Drunk Driver at Camp Pendleton, California, Five years ago.
The Tax Cuts and Jobs Act Simplified many Parts of the Tax Code, resulting in both Lower Taxes and Easier Filing. Far Fewer Taxpayers now make an Itemized List of Deductions, for instance, Opting instead for a Standard Deduction that is much more Generous than it used to be.
Another Simplification junked a Complicated Rule regarding Unearned Income for Children that was originally drafted in 1986 to Discourage Wealthy Parents from Gifting Large Sums of Money to their Offspring to dodge Taxes. The so-called “Kiddie Tax” required Parents to do their Kids’ Taxes First, and then add the Taxable Portion of their Children’s Income to their Own Return.
The New, Simpler Arrangement lets Parents file wholly Separate Returns for themselves and their Kids, but the Tax Rates on even Low Levels of Unearned Income for Children can near 40%. Republicans had long wanted to make this Change. But a Stalled GOP Tax Reform Bill had the same Provision in 2014.
But nobody seemed to Realize the Change would Clobber Households with Children who are receiving Benefits because a Parent Died on Active Duty or in Retirement from the Military. “It’s an unintended consequence because Congress enacted it quickly without hearings,” said Mark Mazur, the Robert C. Pozen Director of the Urban-Brookings Tax Policy Center.
Fixing the Gold Star Glitch has also become a bit of a Bargaining Chip. In May, the Senate Passed a Standalone Bill that would Solve Gold Star Families’ Tax Problem. A similar House Measure has 169 Republican and Democratic Co-Sponsors. But rather than Address the Glitch Directly, Democratic Leadership added a Fix to the SECURE Act, a Package aimed at Boosting Retirement Security that Passed the House in May by a Bote of 417 to 3. Now the SECURE Act has Hit a Roadblock in the Senate, where a Handful of Republicans have put a Hold on it, an Old Legislative Trick that allows Individual Senators to Stall Bills.
Sen. Ted Cruz (R-TX), one of the most Vocal Senators Holding up the SECURE Act, actually has No Beef with what’s in the Bill, he’s just Mad that House Democratic Leaders Removed a Provision that he had Championed that would Allow Parents to use tax-Advantaged 529 Savings Accounts for K-12 Educational Expenses such as Tutoring and Homeschooling.
The whole Episode is a tangle of Two Overlapping Policy Issues. Different Groups of Lawmakers handle Tax and Military Policy and have been pursuing their respective Solutions on Separate but Parallel Tracks. Fixing the Benefit Offset would Resolve the Tax Problem that cropped up this year for Widows like Davis. But Attacking the Tax Problem itself would Not Fix the underlying Benefit Offset Issue, which is called the Widow’s Tax even though it’s Not actually a Tax.
NYC Wins When Everyone Can Vote! Michael H. Drucker
