Straight Talk for Seniors®: The Final Tax Reform Bill
This post was updated on Dec. 20.
Congress has passed a tax reform bill that merges the two versions passed earlier by each chamber. The final bill includes several provisions that NCOA and other aging advocates are concerned will harm older Americans, especially those who are most vulnerable. Below are highlights.
- Federal Deficit: The bill increases the federal deficit by almost $1.5 trillion. According to the nonpartisan official scorekeeping Joint Committee on Taxation (JCT), increases in economic growth would reduce that to about $1.1 trillion. Recent statements from Republican leaders have made it clear that if the deficit increases significantly, their next priority will be to cut programs—including Medicare, Medicaid, the Older Americans Act (OAA), and possibly Social Security—to make up for it. In fact, the Congressional budget blueprint that Republicans passed this fall proposed $473 billion in Medicare cuts, $1 trillion in Medicaid cuts, and $800 billion in cuts to non-defense discretionary programs like the OAA.
- Individual Mandate: The bill keeps the Senate provision to repeal the Affordable Care Act (ACA) individual mandate, which is projected to cause an estimated 13 million Americans to lose their health insurance. Approximately 3.3 million older adults aged 55-64 currently receive their health insurance under the ACA and could face premium increases of over $1,000 per year.
- Medical Expense Deduction: It keeps the Senate provision to retain the Medical Expense Deduction for those with high out-of-pocket health costs, and it reduces the threshold from 10% to 7.5% for two years in 2018 and 2019. Almost 5 million taxpayers aged 65+ use the deduction.
- State and Local Tax Deductions: The bill maintains the House provision not to completely repeal all state and local tax deductions. It includes not only property taxes, but also state and local income and sales taxes, in reaching a $10,000 cap.
- Tax Cut Expiration: It maintains the Senate provisions to make the corporate tax cuts permanent, while most tax cuts for individuals would expire in 2025. Extending these expiring cuts will increase the deficit even more than estimated.
- Charitable Tax Deductions: Although the bill maintains charitable tax deductions, it also increases the standard deduction and doubles the estate tax from $5.5 million to $11 million. According to JCT, doubling the standard deduction would reduce the number of itemizers who deduct charitable contributions from 40.7 million to 9.4 million, reducing the amount of contributions by $95.8 billion.
- Consumer Price Index: The bill increases taxes by about $130 billion over 10 years by changing how inflation is measured to adjust income tax thresholds. By using a lower “chained” Consumer Price Index (CPI), many middle and lower-income taxpayers will be pushed more quickly into higher tax brackets due to inflation. These tax increases grow from $2 billion in 2019 to about $30 billion in 2027, and over $500 billion from 2028-2037. Senior advocates are worried that this use of the chained CPI increases the chances that Social Security cost of living adjustments will be cut the same way in the future.
- Program Cuts: Due to the increased deficit and budget sequestration (PAYGO) rules, passage of the bill would automatically trigger $136 billion in program cuts next year, including $25 billion in Medicare cuts and potential elimination of the Prevention and Public Health Fund and Social Services Block Grant program. However, Congress is expected to waive these rules so that the cuts will not occur.
NCOA will continue to track this important legislation closely and advocate to protect senior programs that may be threatened.