Surprise Tax shocks no one who knew it was a mess....

Military families slammed by Trump tax reform demand changes

By Haley Byrd

President Donald Trump has long touted the advantages of his 2017 tax reform bill, but Republicans are now under fire for one of the bill's overlooked consequences: A huge hit for families of fallen service members.

That's due to a change in how the IRS handles survivor benefits paid out to children, which are now treated like stocks or other inheritances -- driving up taxes by thousands of dollars.

"People are absolutely shocked that this happened, and they weren't planning for it," Ashlynne Haycock, deputy director of policy for the military families nonprofit Tragedy Assistance Program for Survivors (TAPS), told CNN in an interview. "It has been a severe hardship for surviving families."

TAPS and several other large veterans' service organizations are planning to "storm the Hill" right before Memorial Day to lobby members of Congress to change the way benefits are granted to Gold Star families, Haycock said.

It adds another issue to a pile of glitches and mistakes included in the hastily-passed tax bill that lawmakers have had to address after the legislation's passage. Republicans are already mulling over how to rectify the survivor benefits situation, which drew attention earlier this week after Task & Purpose, a military-focused publication, first reported the increased tax bills.

Rob Damschen, the Republican communications director for the House Ways and Means Committee told CNN that hiking taxes for survivors benefits was an "unintended consequence" of the tax bill, and that analysts and lawmakers failed to recognize it would negatively affect children of fallen service members beforehand.

"Since the 1980s families have wanted Congress to simplify the way children are taxed, and we were happy to provide that help in the new tax code. Military survivor benefits, however, are very different than a gift of stocks and bonds to your child," Damschen wrote in a statement to CNN.

"Now is the time to act, and House Republicans are committed to finding a solution that is both fair and retroactive so our Gold Star families keep what they have sacrificed so dearly for," Damschen said.

But some argue the underlying problem is part of a long-running debate that Congress has chosen not to address for nearly two decades.

There are two benefits available to surviving spouses: a non-taxable monthly stipend of about $1,300 from the Department of Veterans Affairs' Dependency and Indemnity Compensation, and an insurance annuity ranging in amount from the Department of Defense's Survivor Benefits Plan. Yet under current law, military widows and widowers cannot receive the full amount of both.

For about 65,000 Gold Star families subject to this offset requirement, the government subtracts the amount of the VA benefit from the DoD benefit each month, a policy opponents have deemed the "Widows Tax." This results in some recipients being left with just the VA benefit, which is about $15,800 annually, and a substantially reduced sum from the Defense Department.

In order to collect the full amount, some surviving spouses choose to designate the DoD benefit to their children.

In the past, when surviving spouses placed the Defense Department benefit under their children's names, it was taxed at the parent's rate. But the 2017 Tax Cuts and Jobs Act made changes to the so-called "kiddie tax," which deals with child income. Instead of taxing the survivor benefit plan at the parent's rate, the government now treats the benefit as if it were a trust or estate, meaning it can be taxed at much higher rates, up to 37%.

Jessica Braden-Rogers, one of the military widows who first shared her story with Task & Purpose, was married to Army Capt. Michael Braden, who died in 2012 when deployed to Afghanistan. She has since remarried and does not receive the monthly benefit from the VA, but her son receives the Defense Department benefit. According to tax returns she shared with CNN, her son owed $1,135 in taxes for 2017. In 2018, that number became $4,471.

She said in an interview with CNN's Don Lemon on Wednesday night that she has reached out to members of Congress and the White House to push for a change, but has received no responses.

"They need to immediately rethink that and think about the impact that it's having on Gold Star children and their families," she said. "We've already sacrificed enough."

Haycock said she was optimistic progress would be made on the issue this Congress, despite the partisan split between the Democratic House and the Republican Senate.

"This year we have seen a huge increase in support," she told CNN. "Encouraging Congress to find the funding, allocate the funding and get this done is the goal."

Alabama Democratic Sen. Doug Jones introduced a bill to change the offset requirement in February, titled the Military Widow's Tax Elimination Act of 2019. 37 Democrats and 19 Republicans have signed onto the bill. Oklahoma Republican James Inhofe, chairman of the Armed Services Committee, which has jurisdiction of the NDAA, is one of the bill's supporters.

A Congressional Budget Office estimate of a version of the bill introduced in 2009 projected it would cost the government about $7 billion over a decade to implement.

In the House, South Carolina Republican Joe Wilson has re-introduced the Military Surviving Spouses Equity Act alongside a number of influential allies, including House Budget Committee Chair John Yarmuth. The legislation has won over a wide range of cosponsors in both parties, including 120 Democrats and 115 Republicans.

If those bills don't advance as standalone measures, military family advocates hope the offset will be scrapped this year as part of the National Defense Authorization Act. The matter depends primarily on congressional leaders, Haycock said.

"We are incredibly hopeful," she told CNN. "We think that it has a good chance."