Lawmakers target tax credit for undocumented workers to help restore military pension cuts

Retired Army Sgt. Mike Mullins
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After serving in the military for decades, many veterans now feel they've been ambushed - by the United States Congress.

"It just doesn't make any sense to me," said retired Army Sgt. Mike Mullins. "I don't know how they thought they could get away with it."

Mullins is talking about recent votes by Congress to reduce pension benefits for many retired veterans.

This month, the House and Senate both approved a new budget agreement that includes pension cuts. Those cuts will save an estimated $6.3 billion by reducing the cost of living allowance for retired servicemen under the age of 62.  

Lawmakers approved the reduction in military benefits – along with about $80 billion more in overall budget cuts – to help restore funding to other programs devastated when Congress made deep cuts earlier this year during the sequestration process.  The new budget allocates billions of dollars for programs such as early education, and it passed with bipartisan support from Republicans and Democrats in both chambers.

The deal was brokered by Senate Budget Committee Chair Patty Murray (D-Wash.) and House Budget Committee Chair Rep. Paul Ryan (R-Wis.). Some lawmakers quickly voiced their concerns.

"How did this happen? How did we pick a pay-for that, to me, is just unacceptable," wondered Sen. Lindsey Graham (R-SC). "They fought hard. They fought long. They earned what they got. We shouldn't retroactively diminish their retirement."

If the current budget plan is signed by President Obama, more than 850,000 retired veterans under the age of 62 will see their pension plan's annual cost of living allowance reduced by 1%. That small amount can really add up : $70,000 - $100,000 less for each retired veteran during the course of his lifetime.

"It's kind of a gut-wrencher," said Mullins, who now collects a military pension after serving 20 years in the army.  He relies on the pension to help pay his mortgage.

"A one percent cut may not sound like a whole lot, but over ten or twenty years, it really can be," he said.

Critics of the current military retirement system – and there are many – contend the system must change, something that has not happened in more than 100 years. Even Congress' staunch military supporters, like Sen. John McCain (R-Ariz.), believe it is time to amend or scale back some elements of the program.

Others believe the pension cuts are unacceptable and have already started a movement to restore the cost of living allowance.

Rep. Mike Fitzpatrick (R – Pa.) is among them.  He wants to pay for the restored pension benefits by reigning in a tax credit claimed by millions of illegal immigrants.

It's a story exposed nationally by Eyewitness News. WTHR's "Investigating the IRS" investigation showed how the IRS was ignoring blatant tax fraud involving additional child tax credits. For years, undocumented workers have been able to collect tax refunds by fraudulently claiming the ACTC for family members who do not live in the United States.

After WTHR documented the problem, the U.S. Treasury Department's Inspector General for Tax Administration told 13 Investigates the problem is out of control.

"The magnitude of the problem has grown exponentially," said TIGTA Russell George. "We're talking $4 billion per year."

Lawmakers like Fitzpatrick say cracking down on the tax credit will more than pay for veterans' restored pension benefits.

"This nation desperately needs a return to fiscal normalcy and bipartisan cooperation. While the Bipartisan Budget Act is a step in that direction, it does so partly on the backs of our brave military veterans," Fitzpatrick said in a statement. "What I've done is introduce a bill to remove that burden from our military retirees and replace it with common sense reforms."

Mullins hopes it's not too late.

"It's a step in the right direction. Why can't they fix that [tax] loophole instead of picking on the military?" he asked. "Doesn't make any sense to me."

While President Obama is expected to sign the new budget plan into law, the pension reduction for retired vets is not yet a done deal. The cuts are not scheduled to take affect for two years, which gives lawmakers plenty of time to change their minds and to introduce altering legislation. A committee has been appointed to study possible reforms to the military retirement system. That committee will present its recommendations to the President and Congress next summer.