McDermott's Tax Parity Bill

Sixty percent of Fortune 500 companies now offer domestic partner health care benefits, benefits, unlike those of married partners, that are currently fully taxed as income under federal law. But after a decade of pushing legislation to fix this inequity, and a who's who of major corporations now coming to his support, Rep. Jim McDermott (D-Seattle) may finally be on the verge of passing the The Tax Parity for Health Plan Beneficiaries Act” (H.R. 2088) into law.

"It's a matter of basic fairness," Rep. McDermott explained by phone as he was boarding a plane, "But it's also just good business."

According to a May, 2011 study released by the think-tank Third Way, the average employee receiving benefits for a domestic partner pays an additional $1,717 in extra federal taxes, while the employer providing the benefit pays an additional $256 in payroll taxes. Such an employee earning $50,000 a year while receiving $10,000 in benefits for a domestic partner would pay income tax on $60,000 a year, for example, whereas a married co-worker receiving the same level of benefits for his or her spouse would only pay taxes on $50,000.

This not only creates a hardship for domestic partner families, it also places companies who provide such benefits at a competitive disadvantage, prompting 77 of our nation's largest companies—including Alaska Airlines, Microsoft, Boeing and others—to send a letter in support of Rep. McDermott's legislation under the aegis of the Business Coalition for Benefits Tax Equity. "This coverage and coverage for other non-spouse, non-dependent beneficiaries helps corporations attract and retain qualified employees and provides employees with health security on an equitable basis," the letter argues. "Unfortunately, federal tax law has not kept pace with corporate change in this area, and employers that offer such benefits and the employees who receive them are taxed inequitably." In fact, Google has found these benefits so crucial that it now increases the pay of recipients to make up for the tax penalty.

Rep. McDermott first introduced the bill back in 2001. "My approach is to put a stake in the ground with the best public policy possible, and then look for a vehicle to ride." That opportunity came in 2010 with health care reform; the tax parity provisions actually made it as an amendment on the House version of the bill, only to be stripped out in the Senate without explanation. "It doesn't make sense, Rep. McDermott complains. "Nobody is ever very specific" in their opposition, there's just a "generalized feeling" that it somehow promotes gay marriage.

Josh Friedes, executive director of Equal Rights Washington says that his LGBT community deserves some of the blame of for failing to generate the support necessary to pass the legislation. "We haven't done a good enough job of educating the public about the impact of the gay tax penalty," says Friedes, pointing to some same-sex partners who have to turn down health care benefits simply because they can't afford the extra taxes. "Most of our heterosexual peers are simply unaware of the increased taxes we pay." If they understood the issue, even many conservatives would support the bill, Friedes believes. "They may be uncomfortable with gay marriage, but they believe in tax equity."

And with big business now backing the bill, including Dow Chemical, the biggest business in House Ways and Means Chair Dave Camp's (R-MI) home district, Rep. McDermott feels the momentum moving toward passage. "There's going to be a Tax Reform Bill this year," Rep. McDermott predicts. "That's the vehicle we're going to use to get tax parity passed."

And when that happens, Friedes says, the LGBT community will owe Rep. McDermott a huge debt of gratitude. "People don't realize how close we came, and how incredibly hard he's worked on this issue. Jim McDermott is an unsung hero."

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