The McCain/Palin ticket is really reaching now.
In Pittsburgh on Friday, Oct. 24, Gov. Sarah Palin noted that parents of children with special needs often set up trusts to help ensure long-term assistance. “Many families with special needs children or dependent adults” are concerned that Sen. Barack Obama “plans to raise taxes on precisely these kinds of financial arrangements,” she said. “They fear that Senator Obama’s tax increase will have serious and harmful consequences, and they’re right.”
This according to this post by Roni Deutch’s excellent “Tax Lady Blog.”
It is true that special needs children and adults often create trusts in order to, as Governor Palin avers, help ensure long-term assistance. Sometimes the disabled individual creates a trust with their own assets or someone else (like their parents) creates the trust for them using their assets. These trusts are also often used to maintain eligability for government benefits and other services after the disabled beneficairy receives a windfall of some kind like winning a lawsuit or inheriting assets from a deceased relative. They are further usefull as tools to improve the quality of life of disabled individuals who are dependent on government benefits as these benfits do not provide all that one needs from day to day. Simple, everyday things like paper products are often not covered by Medicare and these trusts are used to fill that very wide (and ever-expanding) chasm.
Ms. Deutch writes:
The way most of these trusts are structured, the interest they gain is taxed as part of the parents’ income.
This is true, but there are important differences depending on whom created the trust. If the disabled person set up the trust with their own assets then that trust will usually pay its own income taxes. As Ms. Deutch points out, the trust is usually set up such that the taxes are actually due to the person who created the trust (called the “Grantor”) but where a Grantor has no other assets but those contained in the trust, the trust will be actually be the one writing the check.
Palin, in her remarks, suggests that Obama will increase taxes on these trusts in general, thereby reducing the funds in them. The McCain campaign did not respond to requests to explain or comment on the record.
Obama has pledged to increase taxes only on individuals with incomes over $200,000 and families with incomes over $250,000. He is not offering an exception for interest in special needs trusts — that income counts toward the total. So, if someone’s taxes go up under Obama, the interest in a trust fund is part of what will be taxed at a higher rate.
This is also correct but its not the interest in the trust would cause an increase in taxes due but the income. This is an important disctinction. The extra taxes though will also usually come from the trust’s own assets so there would likley be no extra burden on the family or the disabled individual.
But Obama does not have a plan to increase taxes on special needs trusts in general. And Jason Furman, economic adviser for the Obama campaign, noted that Obama has vowed to fix his plan if any individual making less than $200,000 or family making less than $250,000 is left paying higher taxes. So, if Obama’s tax plan, unintentionally, forced taxes up on a special needs trust for someone at a lower income, the tax plan would change, and the person’s taxes would not go up, Furman said.
[...]
Before Palin launched this attack Friday, the McCain campaign told the Wall Street Journal that it was coming. The newspaper, in an article published online Friday, quoted Andy Imparato, president of the nonpartisan American Association of People with Disabilities, saying he has not heard any complaints from constituents about Obama’s tax plan. It was not clear what Palin’s evidence was that “many families” were concerned about Obama’s plan.
It is also worth pointing out that history shows definitivley that medicare and other government benefit programs are better funded by democrats. Given that the assets of these trusts are used to cover needs that are not otherwise met by these various services, a Republican White House is much more likley to cause a precipitous spend down of the assets held in the country’s special needs trusts than President Obama’s tax plan would.
I can’t wait till this election is over.
