How will the GOP Tax Plan Affect the Disabled?

How will the new Republican tax plan affect me if I am disabled?

Author: Attorney Lonnie Roach

On December 22, 2017, President Trump signed the GOP tax bill that will take effect on January 1, 2018. Though many of the new provisions seem like a welcome change, it is important to realize that the bill comes with a price tag in the form of a $1 trillion deficit over the next 10 years.

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With the tax rate for corporations decreasing drastically the government is left with the dilemma of how to pay for federally funded programs and services for people such as the disabled.

While the tax rate for corporations will decrease substantially, the government is left with the dilemma of how to pay for federally funded programs and services with reduced tax revenue.

Driving the 2018 projected tax cuts is the statutory Pay As You Go Act or PAYGO, originally enacted by President George H.W. Bush and updated during President Obama’s administration.

PAYGO requires any legislation that increases the federal deficit to be paid for through spending cuts, increases in revenue, or other offsets. Most mandatory federal programs, with the exception of Social Security, unemployment, and food stamps (which are based on income) are subject to PAYGO, and in 2018 it could mean a $1.7 billion cut to the Social Services block of the federal budget.

Advocates for the elderly and the disabled are concerned that the new tax plan:

•   Will increase taxes on some taxpayers over 65 years of age;
•    Trigger cuts to Medicare and Medicaid;
•   Disrupt existing insurance coverage and drive up insurance premiums; and
•   Reduce federal funds to programs that assist the disabled, elderly and children such as Meals on Wheels and CHIP (Children’s Health Insurance Program).

How does this translate for the disabled person?

In order to compensate for tax revenue reduction, Congress will have to get creative. They may propose changes to separate laws that govern the eligibility for programs and benefit amount formulas to reduce government spending, making it more difficult to qualify for programs and reducing the amount of benefits. Advocates for the disabled argue that these cuts in benefits and services would have a negative effect on individuals and households who already have strained budgets.

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The following are ways the tax plan may affect the disabled:

Changes in exemptions, tax credits and standard deductions.

Two of the most significant changes in the tax plan are the increase in the child tax credit ($2,000 for each child) and the standard deduction ($12,000 for individuals/$24,000 for couples) which may decrease taxes for some individuals and families who do not itemize. It is important to remember that these provisions last only 7 years and all changes will revert to current law in 2025.

Cap on mortgage interest, state and local tax deductions.

Current law allows a person to deduct state and local income taxes, as well as property taxes and mortgage interest. The new law allows only a $10,000 deduction on state and local taxes, including property taxes, and caps mortgage debt at $700,000 (down from $1 million).

Automatic cuts to Medicare and other programs assisting the disabled.

Fortunately, Medicare is protected by law and takes a relatively small hit – 4% – but this could still amount to a $25 billion cut in 2018. Other programs lack this protection, so programs such as Meals on Wheels, affordable housing programs, and higher education programs are likely targets for cuts.

Expands the medical expense deduction.

Currently taxpayers who itemize may deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income. The new law allows a deduction for out-of-pocket medical expenses that exceed 7.5 percent of adjusted gross income – but only for tax years 2017 and 2018. After that, the threshold returns to 10 percent.

Eliminates the Affordable Care Act’s requirement that individuals must purchase a qualifying health insurance plan or pay a penalty.

Because they will no longer be required to, fewer young, healthy people will buy insurance, potentially driving up the price of premiums and preventing many from purchasing insurance.

Reduces the orphan drug tax credit from 50% to 25%.

This tax credit is available to corporations that research new drugs for rare conditions like cystic fibrosis. Even with the new corporate tax rate reduced to 21%, drug companies may be less likely to invest money into research.

It is difficult to predict the tax plan’s impact on the disabled at this point in time.

Though the tax plan has some obvious benefits, the debate surrounding the GOP bill is likely to go on for a long while. As new issues arise, Bemis, Roach & Reed will be on top of new developments and keep our clients informed. We remain dedicated to representing our clients’ best interests and protecting their quality of life.

Author: Attorney Lonnie Roach has been practicing law for over 29 years. He is Superlawyers rated by Thomson Reuters and is Top AV Preeminent® and Client Champion rated by Martindale Hubbell. Through his extensive litigation Mr. Roach obtained board certifications from the Texas Board of Legal Specialization. Lonnie is admitted to practice in the United States District Court - all Texas Districts and the U.S. Court of Appeals, Fifth Circuit. Highly experienced in Long Term Disability denials and appeals governed by the “ERISA” Mr. Roach is a member of the Texas Trial Lawyers Association, Austin Bar Association, and is a past the director of the Capital Area Trial Lawyers Association (Director 1999-2005) Mr. Roach and all the members of Bemis, Roach & Reed have been active participants in the Travis County Lawyer referral service.