Baucus Works With Sens. McCain and Grassley to Provide Military with Tax Relief
Senators Urge House to Pass Comprehensive Senate Bill
(WASHINGTON, D.C.) U.S. Senator Max Baucus joined Sens. John McCain (R-Ariz.) andChuck Grassley (R-Iowa) in pushing the House to finally pass legislation that would providecomprehensive tax relief to members of the military. The original bill, The Armed Forces TaxFairness Act of 2003, passed the Senate in March by a vote of 97 to 0.
Last week, the House passed a watered down version of the Senate military tax reliefbill. As a result, last night the Senate passed an amendment to strengthen the House bill andreinsert the full provisions of the Senate bill that passed in March. While the House versionpassed last week included two important provisions -- doubling the amount of payments receivedif a member of the military dies in the line of duty and ensuring these payments are not subject totaxes -- the bill left out a number of vital provisions.
"The House made important strides for our military last week, but half a loaf is not goodenough when it comes to helping the people who are putting their lives on the line to defend ourcountry," Baucus said. "I'm proud to be working with Senators McCain and Grassley to get theadditional protections that the Senate passed last March into the House bill."
A number of organizations have come out in support of the Armed Forces Tax FairnessAct, including the Military Officers Association of America (MOAA). In a recent statement, theMOAA highlighted their support for quick passage of a comprehensive military tax relief bill:"MOAA believes these major provisions of the Armed Forces Tax Fairness Act, whichprovide relief to thousands of active duty, Guard and Reserve members and military survivors,should be acted on as a single package. The bill has the overwhelming support of Members ofCongress and has been stalled for far too long over relatively minor differences between theHouse and Senate. We applaud [these] actions and hope that the House and Senate leadershipcan reach a swift agreement on this very important issue."
Some provisions that McCain, Grassley and Baucus are working to enact into law include:
Exclusion of gain on the sale of a principal residence: In 1997, Congress passedlegislation excluding capital gains taxes on the sale of a personal home if the owner haslived there for at least two of the previous five years. Unfortunately, Congress failed toprovide a special rule for military and Foreign Service personnel who are required tomove either within the U.S. or abroad. The Senate bill would correct this oversightwhen military personnel are required to move either within the U.S. or abroad.
Above-the-line deduction for overnight travel expenses of National Guard andReserve Members: Some reservists who travel one weekend per month and two weeksin the summer for reserve duty incur significant travel and lodging expenses and theseexpenses are generally not reimbursed. The Senate proposal would provide an above theline deduction for overnight travel costs and would be available for all reservists andmembers of the National Guard, regardless of income.
Ensuring childcare subsidies are not part of taxable income: The Senate proposalwould make sure that childcare subsidies are not included as income for tax purposes formilitary personnel. In 1986, Congress passed legislation stating that qualified militarybenefits are excluded from income. The Senate passed provision would ensure thatchildcare falls under that definition as well.
"As the conflict continues in Iraq, our military men and women are giving their all for ourcountry," Baucus added. "They're away from home, away from their friends and family, andoften placing themselves in serious danger. As Members of Congress, it's the least we can do topass a strong, comprehensive bill that will provide tax relief and make their lives a little easier. Ilook forward to continuing to work with the Senate and House to reach agreement on a final billthat can pass this year."
Full floor statement of Senator Baucus follows:
SENATE AMENDMENT TO THE FALLEN PATRIOTS TAX BENEFIT ACT OF 2003
November 3, 2003
Mr. President, I rise today in support of this amendment to The Fallen Patriots TaxBenefit Act of 2003. The bill that we received from the House includes two important provisionsthat the Senate ha s already approved this year. However, it does not include the numerous otherprovisions that the Senate has passed to ensure equity for military personnel. This amendmentwould add these important provisions.
First, the House bill doubles the amount of the death gratuity payments for members ofour military. Under current law, the families of military personnel receive a death gratuitybenefit of $6,000. This bill would increase that amount to $12,000. The Senate included thisprovision in the defense authorization bill that is currently in conference.
Second, the House bill ensures that these payments will not be subject to taxation. Undercurrent law, death gratuity benefits are excludable from income only to the extent that they wereas of September 9, 1986, which was $3,000.
In 1991, the benefit was increased to $6,000 – but the tax code was never adjusted toexclude the additional $3,000 from income. Because of this oversight, the U.S. government hasbeen taxing families for the death of a family member who died in combat.
The House bill would make the entire $12,000 death gratuity benefit tax- free, and ensurethat families are not hit with a tax bill during their most difficult hour. This provision wasincluded in the Senate passed Armed Forces Tax Fairness Act.
That is what this bill does. Now let me talk about what the House bill does NOT do.This bill does not include the numerous other provisions for military personnel that wereincluded in the Armed Forces Tax Fairness Act of 2003, which was passed by the Senate inMarch by 97 to 0. These provisions are vital to ensuring tax equity for our active duty militaryand reservists.
Let me explain these provisions.
First, the House bill does not include the exclusion of gain on the sale of a principalresidence.
In 1997, Congress passed legislation revising the taxation of capital gains on the sale of aperson’s principal residence.
The new law provides that up to $250,000 – or $500,000 for a married couple – isexcluded on the sale of a principal residence if the individual has lived in the house for at leasttwo of the previous five years.
However, when enacted, Congress failed to provide a special rule for military andForeign Service personnel who are required to move either within the U.S. or abroad.Our proposal in the Armed Forces Tax Fairness Act would permit service personnel andmembers of the Foreign Service to suspend the five-year period while away on assignment. Thatmeans that those years would not count toward either the two years or the five-year periods.
Senators McCain, Graham, and Lincoln proposed a bill in the last session to correct this.Second, the House bill does not allow for the exclusion from taxable income of amountsreceived under the military housing assistance program. The Department of Defense providespayments to members of the Armed Services to offset diminution in housing values due tomilitary base realignment or closure.
For example, if a house near a base was worth $140,000 prior to the base closure and$100,000 after the base closure, DOD may provide the owner with a payment to offset some, butnot all, of the $40,000 diminution in value. Under current law, those amounts are taxable ascompensation.
We should ensure that those men and women losing value in their homes due to a federalgovernment decision are not adversely affected financially.
The proposal in the Armed Forces Tax Fairness Act would provide that payments for thistype of lost value are not includible into income.
Third, the House bill does not expand the combat zone filing rules to include contingencyoperations. Under current law, military personnel in a combat zone are afforded an extendedperiod for filing tax returns.
However, this does not apply to contingency operations. This proposal in the ArmedForces Tax Fairness Act would extend the same benefits to military personnel assigned tocontingency operations.
It cannot be easy trying to figure out our complicated tax system while you are ove rseasand protecting our nation’s freedom. Those men and women who are sent to uphold democracyand freedom in other countries are confronted with the same filing complications as combat zonepersonnel.
Contingency operations are just as demanding as combat zone deployment, although notalways in the same manner. For example, in our current war on terrorism, this proposal wouldhelp members of our Special Forces in the Philippines supporting Operation Enduring Freedom.These troops are just as focused on accomplishing their critical mission as our troops in the Iraqicombat zone.
Fourth, the House bill does not provide an above-the- line deduction for overnight travelexpenses of National Guard and Reserve Members. Some reservists who travel one weekend permonth and two weeks in the summer for reserve duty incur significant travel and lodgingexpenses.
For the most part, these expenses are not reimbursed. Under current law, these aredeductible as itemized deductions but must exceed 2% of adjusted gross income.For lower income reservists, this deduction does not provide a benefit, because they donot itemize. For higher income reservists, the 2% floor limits the amount of the benefit of thedeductions.
In my home state of Montana, we have approximately 3,500 reservists - 800 of whomtravel each month across the state for their training. These 800 reservists pay travel and lodgingexpenses out of their own pocket.
Montana ranks 48th in the nation for per capita personal income. So, that $200 expensefor reserve duty every month means a lot to the Montana reservist. Yet, they continue selflesslyto provide their services to our country at their own expense. For those reservists who travel outof state for their training, this expense is even higher.
The proposal in the Armed Forces Tax Fairness Act would provide an above the linededuction for overnight travel costs and would be available for all reservists and members of theNational Guard.
Fifth, the House bill does not expand the rules to qualify for membership of veterans’organizations. Currently, qualified veterans’ organizations under section 501(c)(19) of the taxcode both tax-exempt and contributions to the organization are tax-deductible.
In order to qualify under 501(c)(19), the organization must meet several tests. Forexample, 75 percent of the members must be current or former military -- and substantially all ofthe other members must be either spouses, widows, or widowers of current or former military.The proposal in the Armed Forces Tax Fairness Act would permit lineal descendants andancestors to qualify as eligible members of these important groups.
It is important that our veterans’ organizations continue the good work that they do. But,as the organizations age, they are in danger of losing their tax-exempt status. The Armed ForcesTax Fairness Act helps ensure the vitality of these organizations.
Sixth, the House bill does not clarify the tax treatment of childcare subsidies. I want toensure tha t parents in the military can continue their dedicated service with the knowledge thattheir children are well taken care of.
The military provides extensive childcare benefits to its employees. Employees at DoDownedfacilities provide childcare services while other areas with non-DoD owned facilitiescontract out their childcare.
When Congress passed the Tax Reform Act of 1986, we included a provision stating thatqualified military benefits are excluded from income. It is not absolutely clear whether childcareprovisions are covered under this provision.
The proposal in the Armed Forces Tax Fairness Act would clarify that any childcarebenefit provided to military personnel would be excludible from income.
Seventh, the House bill does not allow students at the Service Academies to use theireducation savings account funds. In contrast, the Armed Forces Tax Fairness Act does permitpenalty- free withdrawals from education savings accounts and qualified tuition programs madeon account of the attendance of the account holder or beneficiary at any of the ServiceAcademies. The amount of the funds that can be withdrawn penalty- free is limited to the costs ofadvanced education in that calendar year.
Eight, the House bill does not allow the IRS to suspend the tax-exempt status of terroristorganizations. Under current law, there is no procedure for the IRS to suspend the tax-exemptstatus of an organization.
The Armed Forces Tax Fairness Act would allow the suspension of the tax-exempt statusof an organization for any period during which the organization is designated or identified- byExecutive Order- as a terrorist organization.
Ninth, the House bill does not provide tax relief for families of those killed in the SpaceShuttle Columbia. Current law provides for income tax, estate tax, and death benefit relief tosoldiers who are killed in a combat zone, victims of the September 11th attacks, the OklahomaCity bombing victims, and the victims of the anthrax attacks.
The crew of the Space Shuttle Columbia was heroic in every sense of the word. We havea duty to those who lost their lives for the advancement of science and increasing our knowledgeof the world we live in. The Armed Forces Tax Fairness Act would make all of the abovebenefits available to the families of the Columbia crew.
The tenth and final difference between the House bill before us and the Armed ForcesTax Fairness Act is that the bill before us is not offset. In contrast, the Armed Forces TaxFairness Act is completely offset by strengthening the collection of taxes from people who haverenounced their U.S. citizenship in order to avoid U.S. taxes.
However, some of our colleagues in the House have objected to this provision. So, in theinterest of enacting these important military tax provisions as quickly possible, the Senatechanged the offset to a simple extension of the present law customs user fees.
The Senate amendment to the House bill would add these very important nine provisions.In addition, it would add an offset that the House has not opposed this offset in the past. Wehope that this compromise on our part will allow them to pass the provisions from the ArmedForces Tax Fairness Act that we have included in this amendment.
Mr. President, the passage of the death gratuity payments provision is an important firststep. However, there are thousands of men and women in uniform that are depending on us topass the other ten provisions included in the Armed Forces Tax Fairness Act.
Simply put, there is absolutely no excuse if Congress fails to pass the Armed Forces TaxFairness Act this year.
Everyday, our military men and women fight for our freedom and the freedom of everyAmerican. Their sacrifices are great. Passing the other ten provisions included in the ArmedForces Tax Fairness Act is not a lot for them to ask of Congress.
I urge my colleagues in the House to pass the Senate amendment to the Fallen PatriotsAct of 2003.
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