Going All the Way for Usurers

But I, being poor, have only my dreams.
W.B. Yeats, He Wishes for the Cloths of Heaven

It is easy for the poor to become so excited over the proposals in the new bankruptcy law that they lose sight of the exciting changes that may soon be coming in the Medicaid field.

The great thing about the Bankruptcy Abuse Prevention and Consumer Protection Act, as its creators whimsically describe it, is that to appreciate its approach it is not necessary to read the entire Act. Its flavor can be detected by reading about just a few of the changes proposed by Democratic senators and rejected by their Republican counterparts. There is not room to describe them all, but a few examples make the point.

Senator Mark Dayton, a Democrat of Minnesota proposed an amendment that would prohibit credit card companies from charging more than 30 percent interest on unpaid balances. That may seem like a lot to those who are accustomed to borrowing money at 5 percent but it doesn’t seem like a lot to the poor who are accustomed to being charged interest rates that the wealthy would consider unconscionable and refuse to pay. (In some states interest rates on unpaid balances can approach 50 percent and under certain circumstances exceed that rate.) Credit card companies favor high interest rates because they know that the higher the interest the more money they will make. Limiting interest rates did not make sense to a majority of the senate, many of whose members are generously supported by the financial industry. The amendment failed by a vote of 74 to 24.

Still another defeated amendment would have required lenders to prominently display on monthly statements, the length of time it would take the borrower to pay off the debt if only minimum payments were made. Depending on the age of the debtor and the amount of interest charged, it is easy to conjure up scenarios in which the consumer’s life expectancy would end before the debt was retired, thus adding depressing thoughts of mortality to the equally depressing thought of spending the rest of one’s life in debt.

Another defeated amendment would have increased the amount of equity in homes debtors could keep if the need for bankruptcy was occasioned by medical costs they had incurred. As a result of the appointment of Michael O. Leavitt, the new secretary of health and human services, that may be soon be more relevant than it formerly was.

In his first speech after becoming secretary, Mr. Leavitt said:

“Right now, many older Americans take advantage of Medicaid loopholes to become eligible for Medicaid by giving away assets to their children. There is a whole industry that actually helps people shift costs to the taxpayer.”

When I first read that I focused only on the last sentence and became alarmed. I thought that a member of Mr. Bush’s cabinet was attacking lawyers and financial planners who do tax planning for those in need of such services. It is the hallmark of those professions that if they do their work competently, the wealthy will pay less in inheritance and estate taxes thus shifting the costs of running the country to other taxpayers. I was greatly relieved to go back and read the entire paragraph and realize Mr. Leavitt has no objection to the wealthy transferring their assets in ways that enable them to reduce, if not eliminate, the transfer taxes they would otherwise pay even though that means that the people assisting them are part of an industry that can fairly be described has helping “people shift costs to the taxpayer”. What he objects to is the practice of the less-than-wealthy giving away their assets not to save taxes, but to qualify for governmental benefits. After these people have given away their assets (except for the ones the law permits them to retain without losing their eligibility for benefits) and have permitted a prescribed period of time to expire, their stay in nursing homes and many of their medical expenses will be paid by the taxpayer.

Mr. Leavitt observed that the government could save $4.5 billion over the next ten years if it restricted asset transfers to family members, thus permitting far fewer people to qualify for Medicaid benefits. In case anyone did not get his drift, he went on to say that: “Medicaid must not become an inheritance protection plan.”

Tax planners can breath a big sigh of relief. Although it would be very easy for Mr. Leavitt’s speech to be rewritten, substituting the words “tax planning” for the words “Medicaid”, it won’t happen. The wealthy have a better lobby than the poor. If you doubt, it go back and read this column a second time.

CHRISTOPHER BRAUCHLI is a lawyer in Boulder, Colorado. He can be reached at: Brauchli.56@post.harvard.edu or through his website: http://hraos.com/


Christopher Brauchli can be e-mailed at brauchli.56@post.harvard.edu. For political commentary see his web page at http://humanraceandothersports.com