Six years in a row, Congress fumbled opportunities to fix a tax law that can penalize active-duty members of the U.S. military. Even with fighting escalating in Iraq and more troops heading overseas, lawmakers may be poised to drop the ball again.
The House and Senate passed versions of the proposed Armed Forces Tax Fairness Act this month and the bills are headed to a conference committee. It sounds simple: Support soldiers with a little extra tax break on home sales profits, some help with reservists’ out-of-pocket travel expenses and elimination of taxes on small lump-sum death benefits for military families. Unfortunately, legislation dealing with the capital gains tax on home sales died in committee last year, and previous bills fell victim to political bickering and a White House veto.
Congress created much of the problem by carelessly omitting a military exemption clause from the Taxpayer Relief Act of 1997. Servicemen and -women, transferred hither and yon, sometimes can’t live in a home two years out of the last five, the limit to qualify for the federal capital gains tax exemption on home sale profits.
The recently passed House and Senate bills would restore the looser limits that the military previously enjoyed. This year’s bills add the deduction for service-related travel expenses and a death benefit exemption, plus a tax-filing grace period for those serving in military operations driven by any national emergency, not just in combat zones.
The bills contain a few points of difference, including a House-passed limit on the travel deductions and the Senate’s proposal to create tax breaks for a small group -- families of astronauts who die during space missions. The two versions disagree about how to finance the measure’s roughly $100-million annual cost. Such petty disagreements unfairly doomed the measure in past years. Surely the House-Senate conferees who will decide the fate of the joint bill realize that the stakes are different now. Imagine a cable television crawl announcing the defeat of this bill running under live pictures of dusty, exhausted U.S. Marines guarding the first convoys of aid into Iraq.
Congress should finish this measure without fuss and take up other military-related tax bills, starting with a credit for employers bridging the pay gap when reservists are called to active duty. These are tax breaks worth passing even as Congress reasonably delays huge tax cuts for the wealthy.