Bill Overview
Title: To amend the Internal Revenue Code of 1986 to establish a deduction for attorney fees awarded with respect to certain wildfire damages and to exclude from gross income settlement funds received with respect to such damages.
Description: This bill allows a deduction from gross income (above the line deduction) for attorney fees and court costs awarded with respect to a qualifying wildfire disaster (i.e., any forest or range fire that is a federally declared disaster, occurs in a disaster area, and occurs in 2015 or later). The bill excludes from the gross income of a taxpayer, for income tax purposes, amounts paid to compensate victims for losses or damages in connection with a qualifying wildfire disaster.
Sponsors: Rep. Thompson, Mike [D-CA-5]
Target Audience
Population: People affected by federally declared wildfire disasters since 2015
Estimated Size: 2500000
- The bill targets individuals and entities affected by federally declared wildfire disasters.
- Wildfire disasters in the U.S. have been increasing in frequency and severity, mainly in states like California, Oregon, and Washington, affecting a large number of people and communities each year.
- The financial and legal aspects of wildfire damage, such as settlement funds and attorney fees, heavily impact both individuals (homeowners, renters, landowners) and businesses in these regions.
- The measure applies only to disasters that have occurred from 2015 onwards, implying that it impacts recent victims who have settled or will settle after this period.
- The focus on excluding settlement funds from gross income will directly benefit victims by reducing taxable income, improving financial recovery potential.
- This bill will have a more accentuated effect on regions within the U.S. highly susceptible to wildfires, such as the Western United States.
Reasoning
- The policy is specifically targeted at individuals and entities affected by federally declared wildfire disasters from 2015 onwards, significantly impacting residents of states prone to wildfires such as California, Oregon, and Washington.
- The financial relief offered by excluding settlement funds from gross income would directly increase disposable income for victims, therefore improving financial recovery and wellbeing.
- Given the budget constraints, the impact would likely be medium to high for those directly impacted by wildfire disasters due to substantial legal fees and compensation amounts.
- However, indirect beneficiaries or those outside primary affected regions will experience low or no impact.
- We consider a variety of affected individuals, including homeowners, renters, and businesses, to cover a spectrum of perspectives.
Simulated Interviews
Elementary School Teacher (Santa Rosa, CA)
Age: 45 | Gender: female
Wellbeing Before Policy: 4
Duration of Impact: 10.0 years
Commonness: 10/20
Statement of Opinion:
- The tax relief on settlements would greatly help my family rebuild without worrying about the tax burden.
- Anything that eases our financial stress is a relief after so much loss.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 7 | 5 |
| Year 5 | 7 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Retired (Paradise, CA)
Age: 60 | Gender: male
Wellbeing Before Policy: 3
Duration of Impact: 5.0 years
Commonness: 7/20
Statement of Opinion:
- With this policy, I'll be able to keep more of my settlement which helps.
- Every bit counts when you're starting over at this age.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 6 | 4 |
| Year 3 | 6 | 5 |
| Year 5 | 5 | 4 |
| Year 10 | 5 | 4 |
| Year 20 | 5 | 4 |
Graphic Designer (Portland, OR)
Age: 30 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 0.0 years
Commonness: 15/20
Statement of Opinion:
- The policy doesn't directly affect me as I didn't suffer property losses.
- However, I appreciate the relief it offers to those who did.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 6 | 6 |
Small Business Owner (Seattle, WA)
Age: 55 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 10.0 years
Commonness: 8/20
Statement of Opinion:
- This tax deduction will help my business recover more quickly.
- Each financial relief makes a difference when rebuilding from a disaster.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 7 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 7 | 5 |
Tech Consultant (San Francisco, CA)
Age: 38 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 18/20
Statement of Opinion:
- The policy doesn't change my situation as I didn't claim any losses.
- I see its value for those who suffered actual losses though.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Farmer (Medford, OR)
Age: 50 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- The deductions could potentially allow more of my compensation to be used for recovery.
- While helpful, I am still facing financial hurdles.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 5 | 4 |
| Year 3 | 6 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
Event Planner (Los Angeles, CA)
Age: 42 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 8.0 years
Commonness: 9/20
Statement of Opinion:
- Excluding compensation from taxable income will ease my rebuilding efforts.
- It increases the net worth of the settlements significantly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 7 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
Wildlife Researcher (Bend, OR)
Age: 29 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 0.0 years
Commonness: 14/20
Statement of Opinion:
- The policy doesn't apply to me directly but it's beneficial for community resilience efforts.
- Tax relief could support wildlife recovery indirectly through communal efforts.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Public Administrator (Redding, CA)
Age: 52 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 13/20
Statement of Opinion:
- The policy encourages more comprehensive recovery by reducing tax burdens on those who have lost much.
- It's a positive step in aiding long-term community rebuilding.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Real Estate Developer (Phoenix, AZ)
Age: 48 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 11/20
Statement of Opinion:
- Receiving the settlement tax-free will allow reinvestment into affected areas.
- This reduces the net financial impact of natural disasters significantly for us.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Cost Estimates
Year 1: $200000000 (Low: $150000000, High: $250000000)
Year 2: $210000000 (Low: $160000000, High: $260000000)
Year 3: $220000000 (Low: $170000000, High: $270000000)
Year 5: $240000000 (Low: $190000000, High: $290000000)
Year 10: $280000000 (Low: $230000000, High: $330000000)
Year 100: $600000000 (Low: $550000000, High: $650000000)
Key Considerations
- The geographic distribution of wildfire events will heavily influence which taxpayers benefit most, particularly favoring residents of states more prone to wildfires.
- The exact tax revenue impact will depend on the number and size of settlements in qualifying wildfires, many of which currently remain variable and unpredictable.
- Legal complexities in determining qualifying expenses and settlements for deduction could moderate the immediate uptake of provisions.