That Other Thing in the Tax Bill Rare Disease Patients Should Worry About
November 21, 2017
The rare disease community has organized to fight a provision in the Republican tax bill that would repeal the Orphan Drug Tax Credit, an incentive that’s seen as critical to incentivizing drug developers to invest in therapies to treat small patient populations.
The Orphan Drug Tax Credit allows companies to claim a tax credit of 50 percent of the qualified costs of clinical research and drug testing of orphan drugs. More than 200 patient groups have voiced opposition to either the House of Representatives repeal of the credit or the Senate’s efforts to weaken it.
The rare disease community, though, has been far less vocal in its opposition to another provision of the tax bill that would eliminate a long-standing deduction that allows people to deduct medical expenses greater than 10 percent of their adjusted gross income. The deduction allows people to offset the costs of acute and chronic medical condition including costs for diagnosis, treatment, equipment, and long-term care services among other things.
The math behind this makes it a deduction that’s used by a small percentage of taxpayers. For those who do make use of the deduction, it can be significant. There are about 8.8 million tax filers who claimed an estimated $87 billion in medical expense deductions in 2015, according to Kaiser Health News.
It’s not clear what the actual impact would be on rare disease patients and their families. Nearly three-quarters of the taxpayers who claim the deduction are over 50 years old, and 70 percent have annual incomes below $75,000, according to AARP’s Public Policy Institute. Even though, as AARP suggests, the deduction may disproportionately impact older Americans, there are plenty of reason to believe that rare disease patients would be well represented among those 8.8 million taxpayers. If just 10 percent of the people who use this deduction did so because of a rare disease, that would still be nearly 1 million people.
A letter sent to Congressional representatives earlier this month from more than 35 groups including the National Organization for Rare Disorders, Muscular Dystrophy Association, and Lupus Foundation of America urged them to restore the deduction. But while rare disease groups have rallied to save the Orphan Drug Tax Credit, they have largely ignored the medical expense deduction.
The proponents of the legislation say that the bill is designed to benefit people broadly. “Our bill lowers the tax rates and increases the standard deduction so people can immediately keep more of their paychecks–instead of having to rely on a myriad of provisions that many will never use and others may use only once in their lifetime,” the U.S. House of Representatives Ways and Means Committee’s said in a FAQ on its webpage in a section that addresses the elimination of the medical expense deduction. “This tax relief will give families the flexibility to use their paychecks for what matters most to them every year.”
It’s an argument that may be more convincingly applied to the repeal of the estate tax than the medical expense deduction. In large and complex pieces of legislation crafted behind closed doors and not subject to close scrutiny and debate, it’s easy for elements to get through without them getting much notice.
There are a number of reasons why the Orphan Drug Tax Credit should get as much attention as it has from the rare disease community. It holds promise for all patients with rare diseases who are waiting to see therapies and cures for their conditions. There’s a case to be made that its played a role in attracting investment in developing drugs for conditions that otherwise would be ignored. And, the biopharmaceutical industry, which benefits it from it far more directly than the patients, is ready to rally the troops and make sure people take note.
The medical expense deduction is far easier to ignore and won’t be top of mind for most people. But in families where a child has a severe rare disease and one parent may have had to give up working to provide full-time care, it can be essential to making household finances work.
The tax bill is a cruel piece of legislation. There’s much in there to be concerned about in it. It increases the burden on some with limited means while enriching those who are most well off. If you are moved to write to your representatives to ask that they save the Orphan Drug Tax Credit, you might want to add a P.S. about saving the medical expense deduction too.
November 21, 2017
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