by Thomas J. Botzman, Ph.D.
In my nearly 40-year career, I have made too many mistakes to count. Some have been small and others large, but everyone came with good intentions. It is easy not to get things completely correct when the decision-making process has been hurried. When I realize I made a mistake with unintended consequences, my reaction is to apologize, fix it, and apologize repeatedly – if need be. It is unacceptable to ignore a wrong, just because the intent was honorable.
The goal of the 2017 Tax Cuts and Jobs Act (TCJA) was to simplify the federal tax code and to make it fairer. In an unintended manner, though, a change to the “Tax for Certain Children Who Have Unearned Income” or the “Kiddie Tax,” contained a legislative fix that shifted unearned income tax from the parent’s income tax rate to the estate and trust tax schedule. For most of us who do not have trusts and estates, that sounds logical enough as a way to be more equitable.
In practice, it is not working as planned.
Dependent children often receive financial support from parents to pay for tuition, room and board at college. Room and board rates alone average about $12,000 annually at the typical four-year college. Under the new tax law, unearned income over $12,751 is subject to a 37% tax rate. If a parent provides more than $12,751 of support annually for a college education, the student dependent will owe more than one third of that amount in taxes. The same goes for scholarships and grants awarded to the student in support of their education.
Many collegians and their families cannot afford this additional tax burden.
For children from lower-income families, the “Kiddie Tax” is a new and prohibitive expense. With 1.3 million undergraduates receiving scholarship and grant aid, this is not a trivial matter. For others, such as Gold Star families (the survivors of troops who died in a combat area), the tax is an unjust and unintended penalty. It was a mistake, but U.S. Congress still has not found a remedy to fix it.
National media outlets reported on the “Kiddie Tax” mistake and the consequences in the spring. Six months later, the House and Senate have not been able to find a bipartisan fix for Gold Star and lower-income families.
It is time to move legislation forward and have it signed into law. The sacrifice made by women and men in our military led to the practice of extending benefits to Gold Star families. As the late U.S. Sen. John Glenn said in his famous 1974 Gold Star Mothers Speech, “… you should be on your knees every day of your life thanking God that there were some men – some men – who held a job. And they required a dedication to purpose and a love of country and a dedication to duty that was more important than life itself. And their self-sacrifice is what made this country possible.”
We must never forget the sacrifice our military women and men have made for each of us. We should collectively apologize, fix the unintended mistake, and apologize again as necessary.
Thomas J. Botzman, Ph.D., is president of Misericordia University in Dallas, the oldest four-year institution of higher education in Luzerne County.