Gold Star families seek help for higher taxes

Overhaul accidentally boosted average bill rate for vets’ children

Veterans’ families are pressing Congress to address an unintended consequence of President Donald Trump’s signature tax law: higher tax bills for the children of deceased service members who receive certain benefits.

Surviving spouses, typically the primary beneficiary, are subject to a reduction in overall compensation if they receive benefits from both the Defense Department and the Department of Veterans Affairs. As a result, many sign their Defense Department benefit over to their children.

But new rules in the 2017 tax overhaul have boosted the average tax rate children pay on the Pentagon benefit from between 12 and 15% to 37%, according to the Tragedy Assistance Program for Survivors (TAPS), an advocacy group.

The change was part of an attempt to stop wealthy families from avoiding taxes by placing assets in their children’s name and wasn’t directed at Gold Star families, as the survivors of slain troops are known.

But the impact has been dramatic for people like Malia Fry, whose husband, Marine Gunnery Sgt. John David Fry, was killed in an improvised explosive blast in 2006 in Iraq.

Last year, the taxes on the benefits that Fry’s two eligible children receive for their father’s military service increased from about $120 to $1,300 per child, she said.

The bigger tax bill is a blow after everything else her f amily has gone through, Fry said.

“We’re trying to move forward with our lives, and to end up with a $1,000 tax bill at the end of the year is hard,” she said.

Jessica Braden-Rogers, whose husband suffered a fatal seizure in Afghanistan in 2012, reached out to lawmakers after she got word early this year that her son’s tax bill would increase from $1,100 to about $4,500.

Braden- Rogers, now scrambling to make sure she can afford things like braces and extracurricular activities for her son, now 10, urged Congress to act before the Internal Revenue Service locks in its requirements for the 2019 tax year. She said other surviving spouses are at risk of losing their houses or having to use food banks.

“We cannot afford another year of this,” she said.

Candace Wheeler, a senior adviser for policy and legislation at TAPS, said she expects that lawmakers will pass legislation to exempt veterans’ children from the tax hike.

While Congress appears eager to help, the issue has become mired in a power struggle between t he House and Republicans in the Senate, with each side endorsing different approaches to getting the measure passed.

In May, the Senate unanimously passed a bipartisan tax relief measure for the families. Days later, the House also passed a fix with nearly unanimous support, 417 to 3, but as part of a bill that included other proposed tweaks to the tax code, most of them regarding retirement programs.

It was the broadening of the bill that caused a backlash in the Senate, and when Sen. Chuck Grassley, R-Iowa, the chairman of the Finance Committee, tried to expedite it through the chamber, several Republicans protested.

Sen. Ted Cruz, R-Texas, objected on the grounds that the House bill omitted a provision that would have allowed tax-free withdrawals from 529 college savings accounts to pay for homeschooling expenses — an omission that also irked some House Republicans but not enough to block passage of the bill.

Sen. Mike Lee, R-Utah, objected to a provision to help community newspapers shoulder their pension plan obligations and argued that the Senate should hold a separate vote on that provision, according to a spokesman.

Sen. Pat Toomey, R-Pa., co-author of the Gold Star fix the Senate passed in May, complained that senators should be given an opportunity to weigh in on the additional changes to the tax code before voting for a bill that favors some retirement programs over others.

Senate Majority Leader Mitch McConnell, R-Ky., has made no special effort to force the House’s measure to a vote on the Senate floor. According to a Senate GOP aide, party leaders think “the best place to litigate all of this is in committee, just like the House did.”

But supporters of the House’s measure worry that reopening it could leave the Gold Star families waiting potentially indefinitely for the Senate to rework a bill.

“The House bill has broad bipartisan support,” Sen. Mark Warner, D-Va., a co-sponsor of Toomey’s bill, said in a statement. “There’s no reason for the Senate to still be dithering around on it when there are Gold Star families desperately waiting for this fix.”