Posted on: Monday, May 31, 2004
MILITARY UPDATE
No veto threat for 'widow tax' phaseout
By Tom Philpott
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 the growth in military entitlements, isn't ready to block such a plan in an election year or risk delaying a defense bill in wartime.
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.
Whatever the cost, the Office of Management and Budget, in a May 19 Statement of Administration Policy on the House defense bill, said money being earmarked to raise SBP is needed elsewhere, "to maintain and enhance the readiness of the armed forces."
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 Sen. John Warner, R-Va., will be floor manager for the 2005 defense bill. The bill came to the floor from the Senate Armed Services Committee, which Warner chairs, proposing no change to the age-62 offset.
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.
Sen. Mary Landrieu, D-La., plans to introduce an SBP amendment. Whether it will stand for a vote could depend on Warner. Last year, another Landrieu SBP amendment was unfinanced and was ruled 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.
The White House policy statement argues against ending the age-62 offset by telling lawmakers that the current SBP program "provides the survivor with a constant 55 percent of the retiree's retired pay."
In other words, OMB argues that there really is no reduction at 62 because surviving spouses can begin to draw Social Security benefits that either match or exceed the drop in SBP.
Defense officials say concern is rising that expansion of entitlements — for retirees and reservists and their families — is soaking up too much of the defense budget.
Defense Secretary Donald Rumsfeld might have slowed momentum already toward opening TRICARE to drilling reservists and their families.
The Senate in March had accepted a budget amendment from Sens. Lindsey Graham, R-S.C., and Tom Daschle, D-S.D., to open TRICARE to all reservists if they paid a modest premium. The cost of $5.6 billion over five years would be covered using unspent money for Iraq reconstruction projects.
Rumsfeld argued in recent weeks that if the cost of reserve forces continued to rise from such initiatives, it might make economic sense to cut reserve forces and expand active-duty components.
In mid-May, a House-Senate conference on the budget blueprint tossed out the Graham-Daschle amendment.
Troop tax relief
On the separate issue of combat tax relief, Sen. Mark Pryor, D-Ark., has taken a first step to solving the problem of lost tax benefits from combat tours for low-income service members with families.
Joined by Sen. Max Baucus, ranking Democrat on the Senate Finance Committee, Pryor on May 13 introduced S2419, the Tax Relief for Americans in Combat Act. It would allow service members "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. Pryor hopes his bill at least draws more attention to a tax glitch that last year dampened family incomes for up to 10,000 service members fighting in Iraq and Afghanistan.
Questions, comments and suggestions are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, or send e-mail to: milupdate@aol.com. Or visit Tom Philpott's Web site.
