Currently, the tax code allows alimony payments to be deducted from income by the payor per IRC § 215, with the payments to be included into income by the recipient per IRC § 61(a)(8). The GOP tax bill repeals these two provisions. The practical effect of the proposed change will be to financially disadvantage the economically weaker party in a divorce.
(I’ve posted the entire bill here. The alimony rules are changed via Section 1309 of the bill which begins at page 122 of the pdf version.)
The reason is really quite simple. The current statutory arrangement encourages the more financially well-off party to pay alimony since it confers a net benefit on the recipient that is, after tax, greater than the after-tax cost for the payor. Simply put, the payment of alimony, which generally flows to the wife in a divorce, will become more expensive.
On a tax lawyer listserve, a conservative colleague of mine commented about this provision: “The loss to the payor will be much bigger than the gain to the payee, and this loss will be incurred at exactly the moment when the former husband and wife are most economically fragile. This is such awful public policy that it is hard to believe that the people who proposed it understand the consequences of what they propose.”
I agree with the first sentence, but not the second. The entire purpose behind the proposed change is simple: raise taxes on individuals wherever possible in order to accommodate corporate tax cuts, overarching public policy be damned. The public policy is awful. But the people behind the public policy fully understand its consequences. They simply don’t care. They’re awful.