It took a 2,300-page, $1.4 trillion legislative package that has to be passed by the end of the week in order to prevent a government shutdown. But Congress is poised to finally rectify a mistake that inadvertently raised taxes on families of fallen service members.
Moreover, lawmakers have also solved the underlying problem that made the error possible.
The long-awaited action will provide financial relief to thousands of Gold Star families, those in Texas and beyond who’ve had a loved one die while serving in the military and who’ve been burdened for months by an oversight included in a sweeping tax revamp passed in 2017.
While a fix once before looked like it was close to the finish line — only for it to languish amid unrelated legislative gridlock — lawmakers are confident that this time is for real.
“A lot of people have been disappointed in the legislative process,” said Rep. Kenny Marchant, R-Coppell, who co-sponsored a bill to fix the error but voted on Tuesday against the spending package due to other concerns. “Hopefully, we’ll be able to deliver it this time. … It’s really important to the families.”
The correction is one of several peripheral provisions included in the massive $1.4 trillion spending package. The measure, which passed the House on Tuesday, is known as a “Christmas tree,” due to the wide range of measures that get a ride on the must-pass legislation.
Headliners in the package included the elimination of some Obamacare taxes, along with the extension of a more generous deduction for medical expenses.
Other lesser-known, but notable tax elements in the package include a repeal of a measure that had taxed churches and other nonprofits for providing employee parking and an extension of a tax break for brewers, distillers and vintners that was set to expire at the end of the year.
But the fix for Gold Star families stood out, given that Congress’ months-long failure to correct the mistake had raised questions about whether lawmakers could sort out even simple problems.
The issue dates back to the 2017 tax overhaul, which passed Congress with only Republican support. An effort to close a loophole for wealthy Americans had the unintended effect of increasing taxes on survivor benefits for Gold Star families.
Many families were caught off-guard by the mistake, which taxed survivor benefits directed toward children at a much higher rate.
Becky Welch is a Wylie mother of two whose husband, Army 1st Lt. Rob Welch, was killed in combat in Afghanistan in 2011. The error by Congress, known as the “kiddie tax,” added hundreds of dollars to her family’s tax bill.
“It’s almost like our hands are being tied,” she told The Dallas Morning News earlier this month.
It had appeared that Congress would resolve the matter back in May. The GOP-run Senate passed a fix. As did the Democrat-run House, as part of a broader piece of legislation. But the two chambers couldn’t resolve an unrelated legislative dispute, and the error lingered.
Only the urgency of a must-pass government funding bill this week has provided enough juice to revive the effort.
Nothing is done until it’s done, of course. But the GOP-run Senate is also expected to pass the sweeping spending legislation, while President Donald Trump is expected to sign it into law to avert a government shutdown at the end of the week.
In the meantime, Congress in recent days also passed a provision via a broader defense bill to fix the underlying problem that even made the “kiddie tax” glitch possible.
Benefits for families who’ve had a loved one die while serving in the military are doled out in an unusual way. There are two different benefits, which must be offset dollar-for-dollar. To get around what’s known as the “widow’s tax,” families often direct one of the benefits to their kids.
The new legislation would, after a three-year phase-in, no longer make that work-around necessary.
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