Military Update: House hopeful about phasing out ‘widow’s tax’
Stars and Stripes May 29, 2004
The Bush administration opposes a House-passed plan to phase out the Social Security offset, also called the “widow’s tax” feature, of the military Survivor Benefit Plan.
But White House budget officials aren’t recommending a presidential veto if the plan appears in the final 2005 defense authorization bill.
Advocates for raising SBP payments to 270,000 older beneficiaries view the absence of a veto threat as promising, evidence that the administration, despite its criticism of military entitlement growth, isn’t ready to block it this election year or risk delaying a defense bill in wartime.
“When have the White House and OMB ever been shy about telling us they are going to recommend a veto?” asked a House staff member. “The fact that they didn’t [is] communicating something.”
The Congressional Budget Office estimates the cost of ending the Social Security offset for beneficiaries 62 and older at $6.7 billion over 10 years. That’s a third more than the administration’s own $5 billion estimate.
The House plan would phase out within four years the drop in SBP that occurs at 62, when beneficiaries typically become eligible for Social Security. Payments now fall from 55 percent of “covered” retired pay down to as low as 35 percent, unless retirees opted to pay higher premiums for “supplemental” SBP, an expensive and unpopular option.
If the Senate agrees to the House plan, SBP for 62 and older would rise to 40 percent of covered retired pay on Oct. 1, 2005, to 45 percent on April 1, 2006, to 50 percent a year later and to 55 percent in April 2008.
Attention on this issue will shift in June to the Senate, where John Warner, R-Va., will be floor manager for that chamber’s 2005 defense bill. It came to the floor from the Senate Armed Services Committee, which Warner chairs, proposing no change to the age-62 offset.
“At $6.7 billion over 10 years,” said a Senate source, “that’s a sizable addition to the budget that’s not paid for.”
The House elected to pay for it with money set aside in past years for what became a controversial Air Force program to replace its tanker fleet.
“Seems to me what we have done can be duplicated in the Senate,” said a House staff member.
Sen. Mary Landrieu, D-La., plans to introduce an SBP amendment. Whether it will stand for a vote could depend on Warner and what amendments he allows. Last year, another Landrieu SBP amendment was unfunded and was rule not germane to the bill. It never came up for a vote.
With service associations touting SBP reform as a top legislative priority this year, Warner will feel more pressure this year to allow a vote.
Combat tax relief
Freshman Sen. Mark Pryor, D-Ark., has taken a first step to solving the problem of lost tax benefits from combat tours for low-income servicemembers with families, as detailed here last week.
Joined by Sen. Max Baucus, ranking Democrat on the Senate Finance Committee, Pryor on May 13 introduced S 2419, the Tax Relief for Americans in Combat Act.
It would allow servicemembers “to continue receiving their rightful combat pay exclusions while having the ability to take full advantage of other tax credits” including the Earned Income Tax Credit, Pryor said.
He and his staff are working on strategies to attach the legislation to another tax bill.
Tax bills, by law, must originate in the House. None has on this issue yet. Pryor hopes his bill at least draws more attention to a tax glitch that last year dampened family incomes for up to 10,000 servicemembers fighting in Iraq and Afghanistan.
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