How Will Trump’s Tax Plan Affect Middle-Income Families?

By Stephanie Hoffer, @profhoffer

The President’s one-page tax plan, released on Wednesday, claims that it will “[p]rovide relief to American families – especially middle income families.”  Whether tax reform eventually lives up to the President’s claim, though, will depend on how he and the Congress choose to address not only tax rates and the standard deduction, but also the personal exemption and credits related to children and dependents.

Like the Republican blueprint for tax reform, the President’s plan would double the standard deduction while trimming itemized deductions.  It also would expand the credit for child and dependent care, although the plan doesn’t specify how.

Notably, the Republican proposal would eliminate personal exemptions provided by § 151, which allow a deduction of $4,050 per dependent in 2017.  Dependents include a taxpayer’s spouse, children, and other members of the household who rely family support.   Although the repeal of § 151 was not specifically mentioned in the President’s proposal, the President and Congress must reach consensus on how to reduce the cost of tax reform.  Eliminating personal exemptions in favor of an expanded standard deduction may be an approach on which both could agree, but it may not be good policy. Continue reading “How Will Trump’s Tax Plan Affect Middle-Income Families?”

Hemel and Maynard Push Boundaries of Equity in Recent Workshops

As part of its summer workshop series, Ohio State’s Moritz College of Law invites junior scholars to present works-in-progress.  This summer, we had the pleasure of hosting both Daniel Hemel, an assistant professor at the University of Chicago Law School and Goldburn Maynard, an assistant professor at the University of Louisville Brandeis School of Law.  Both junior tax scholars are challenging the ways in which tax policy makers think about equity in the context of distributive justice.

Maynard, whose work-in-progress finds its intellectual genesis in Murphy & Nagel’s The Myth of Ownership and Reuven Avi-Yonah’s “The Three Goals of Taxation,” focused on the prominence of everyday libertarianism in tax litigation and policy making.  Tax’s redistributive function, he asserted, should be tethered to equality rather than to economic liberty or to efficiency.  While acknowledging that “equality,” could mean different things to different people, Maynard concentrated on equality of income or wealth, rather than on more difficult-to-quantify forms, such as equality of opportunity. Although he did not explicitly raise it, Maynard seems also to be contemplating an eventual challenge to the sufficiency of vertical equity as a measuring stick in tax policy.  At this point, though, his goal is primarily to widen the discussion.

Hemel, too, is thinking of distributive justice in broader terms.  Using the home mortgage interest deduction as a case study, Hemel and Kyle Rozema, a postdoctoral fellow at the Northwestern-Pritzker School of Law, argue that labeling a tax provision as “progressive” or “regressive” should not be done in isolation.  Instead, scholars and policy makers should look both at the operation of a provision within the context of the Code and at the reallocation of revenue generated by a provision’s amendment or repeal.

For example, households in the top 1% of the income distribution tend to benefit more from the mortgage interest deduction than households in the bottom 99%. On the other hand, the presence of the deduction in the Code counter-intuitively causes the top 1% to bear a larger share of the total tax burden than they otherwise would.   In other words, Hemel and Rozema assert that while the deduction looks regressive when viewed in isolation, it actually increases progressivity overall in the Code.  (This, of course, is a function of what percentage of a taxpayer’s income is devoted to mortgage interest in a skewed income distribution, so the result might be different if Hemel and Rozema dug deeper into the distribution rather than focusing on the top.)  Regardless, Hemel and Rozema seem to be proving Maynard’s implicit point that traditionally “equitable” policies do not necessarily promote equality of income or wealth.

Perhaps more interesting is Hemel and Rozema’s argument that the progressivity or regressivity of an amendment to the Code cannot be determined without also considering Congress’s use of the resulting revenue.  For example, if Congress were to repeal the mortgage interest deduction and write equal-sized checks to each household, the distributional consequences would be more progressive than if additional revenue were used to reduce all taxpayers’ liabilities proportionately.  Here, Hemel and Rozema’s argument brings to mind earlier work by Lily Batchelder and others on the use of refundable credits versus non-refundable credits or deductions.  And notably, like Maynard’s work in progress, Hemel and Rozema’s work is pushing policy makers to look deeper into equity, questioning stock assumptions and asking how the concept can be made meaningful in practice and not just on paper.

That the traditional tax policy cannon (if there is such a thing) would breed restiveness in junior scholars at a time of political and class unrest should come as no surprise.  Maynard’s assertion that equality has separate meaning and import, and Hemel’s and Rozema’s argument that tax analysis is only half of the picture push tax policy scholarship in a direction that is more pragmatic, building a bridge of sorts between what students of tax policy learn and what is happening in government.  It will be interesting to see what the future holds both for these young scholars and for the world of tax policy more generally.


Ohio is First in Country to Make § 529A ABLE Accounts Available to Residents of All 50 States

2016-06-01 STABLE Account Launch 2By: Stephanie Hoffer

The ABLE Act is finally a reality for residents with qualifying disabilities in all 50 states, who now may open tax-preferred savings accounts through Ohio’s Stable Account program.  The ABLE law, which I’ve previously covered  on this blog and for TaxProf, allows individuals with disabilities to save money in tax-preferred savings accounts without jeopardizing their eligibility for Medicaid and other programs that make life in the community possible.  As I have previously written, with the ABLE account, Congress has provided not only a tax advantage that may offset some of the cost imposed by society on individuals with disabilities, it also has taken a first step toward treating them like adults whose dignity and autonomy matter.   Congratulations to the State of Ohio and to Treasurer Josh Mandel’s  team for making the law a reality.

SSA Guidance Changes the Impact of Section 529A


By: Stephanie Hoffer

Passed as part of the Stephen Beck, Jr. Achieving a Better Life Experience Act of 2014 (the “ABLE Act”), IRC § 529A permits the creation of savings accounts, similar to college savings accounts, for individuals with qualifying disabilities.  Although ABLE accounts are tax-preferred, tax preference is not the star of the show.  Rather, the key feature of ABLE is its requirement that when determining an account owner’s eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI), “any amount (including earnings thereon) in the ABLE account . . . of the individual, any contributions to the ABLE account of the individual, and any distribution for qualified disability expenses (as defined in subsection (e)(5) of such section) shall be disregarded . . . .”  Medicaid, in particular, is important for individuals with qualifying disabilities because it covers social services that enable individuals to remain in the community rather than in institutional settings.  SSI is also important, and not just as a source of income.  In many states, eligibility for Medicaid is pegged to eligibility for SSI, and income and asset limitations apply to both.

As I noted in my prior article about ABLE, one viable interpretation of the statute could be that income contributed to an ABLE account is not countable income when determining an account owner’s eligibility for SSI (which, again, in many states is the key to Medicaid eligibility).  Such an interpretation would be in keeping with Congress’s goals for ABLE, one of which was to overcome perverse incentives against savings faced by individuals with disabilities.  But the Social Security Administration, in recently released POMS guidance, took a different position.  The POMS provides, “[t]he fact that a person uses his or her income to contribute to an ABLE account does not mean that his or her income is not countable for SSI purposes.”  So it’s back to the drawing board for individuals like Sarah Wolff, a woman with Down Syndrome who testified before the Senate Finance Committee, “I currently work two part-time jobs, and my employers have been gracious enough to work with me so I do not earn more than seven-hundred dollars a month . . . .”  ABLE could have (and I believe it was meant to) provide Sarah with a place to save her extra income so that she could cover her own disability-related expenses and rely less on the government.  SSA chose the well-worn path to dependence instead.