Daily Tax Report ®

House Hopes to Move Fast on Military Families Tax Fix

May 2, 2019, 7:07 PM

House lawmakers are optimistic they can move quickly to correct a 2017 tax law error that has increased the taxes some military families pay on survivor benefits.

A bipartisan bill introduced May 2 would shield the benefits received by children of deceased service members. The benefits—often signed over from surviving spouses to their children—used to be taxed at 12 percent to 15 percent. That rate jumped to 37 percent under the 2017 law.

The bill could be a touchy issue for lawmakers—Democrats have been reluctant to help Republicans fix issues in the tax overhaul, but also don’t want to be seen as ignoring military families. And with Rep. Elaine Luria (D-Va.), a Navy veteran, as the lead sponsor, the pressure might be on House Ways and Means Committee Chairman Richard Neal (D-Mass.) to put the measure on a fast track in the House and beyond.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) is working on the issue in the Senate, a spokesman said May 2. Sen. Amy Klobuchar (D-Minn.), who is running for president, flagged the error in a letter to the Treasury Department earlier this week.

While both chambers may introduce measures that would make the fix, standalone tax changes usually need to be attached to broader legislative vehicles to pass.

“Finding out the right vehicle to attach it to would make some sense as well,” Neal said. He is also focused on extending expired tax breaks and holding a hearing on climate issues, he said. The committee has two hearings set for the week of March 6.

Neal committed to wanting to pass the bill but didn’t provide a timeline.

Haphazard and Hasty

The error had been included in a discussion draft from former Ways and Means Committee Chairman David Camp (R-Mich.), Rep. Kenny Marchant (R-Texas), a co-sponsor, said May 2.

Marchant said the bill is a priority, and that he hopes the chamber could pass it within the next two weeks.

“It’s been in writing a long time, but apparently nobody realized the consequence it would have,” he said.

Rep. Stephanie Murphy (D-Fla.), also on Ways and Means and a co-sponsor of the bill, said the situation is “what happens when you legislate in an irresponsible way.”

“I certainly hope this is an area we can correct because families who serve this country should be treated with the respect and dignity they deserve,” Murphy said. “They shouldn’t be a victim of haphazard and hastily written Republican tax bills.”

To contact the reporters on this story: Robert Lee in Washington at rlee@bloombergtax.com; Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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