Straight Talk for Seniors®: The House Tax Reform Plan & Older Americans
Congress and the White House have turned their attention to major tax reform, and the bill being debated in the House would have a significant impact on Americans of all ages, including seniors.
The House Ways and Means Committee is expected to vote on the Tax Cuts and Jobs Act (HR 1) this week, with a floor vote expected by Nov. 16.
As with this year’s efforts to repeal the Affordable Care Act, the House will not hold any hearings on the bill before a vote. And the same budget reconciliation process will allow the Senate to pass a bill with a simple majority, without any Democratic support.
The goal is to have a bill ready for the President to sign by Christmas—much faster than any previous action ever taken on major tax reform.
What’s in the bill
NCOA and advocates for older adults are most concerned about how the bill would impact the federal deficit. It includes $5.5 trillion in tax cuts, yet it pays for only a portion of them, largely by increasing other taxes. An estimated $1.5 trillion in tax cuts over 10 years are not paid for.
Increasing the deficit by such a large amount will result in major cuts to Medicare, Medicaid, and discretionary programs like the Older Americans Act—and may even be used as an excuse to cut Social Security. Roll Call interviewed several House Budget Committee members and fiscal conservatives, and “all said they anticipate mandatory spending cuts being a priority for the fiscal 2019 budget reconciliation process.”
NCOA and senior advocates also are concerned with the proposed repeal of the Medical Expense Deduction, which allows taxpayers to deduct qualifying expenses above 10% of their adjusted gross income. Almost 5 million taxpayers aged 65+ use the deduction to reduce potentially bankrupting out-of-pocket medical expenses, such as paying for expensive nursing home care, which averages over $97,000 annually for a private room. Repealing the deduction could also increase Medicaid costs, by accelerating the spend-down process.
Other provisions in the bill would:
- Collapse the number of income tax brackets from seven to four—12%, 25%, 35%, and 39.6%—reducing revenues by $1.09 trillion over 10 years
- Double standard deductions from $6,350 to $12,000 for individuals and $12,700 to $24,000 for couples—reducing revenues by $921 billion over 10 years
- Reduce corporate tax rates from 35% to 20%—reducing revenues by $1.46 trillion over 10 years
- Repeal current $4,050 per-household-member personal exemptions—increasing revenues by $1.09 trillion over 10 years
- Double the estate tax exemption from $5.5 million to $11 million and eliminate it in 2024—reducing revenues by $172 billion over 10 years
- Repeal the Alternative Minimum Tax—reducing revenues by $696 billion over 10 years
- Cap home mortgage interest deductions at $500,000 vs. the current $1 million
- Limit deductions for state and local taxes by only allowing property tax deductions up to $10,000.
An estimated 45% of the tax cuts in 2027 would go to households with incomes above $500,000 (fewer than 1% of filers).
On the positive side, the bill would maintain:
- Retirement savings incentives such as 401(k)s and Individual Retirement Accounts
- The charitable contribution deduction for donations to charities and nonprofit organizations
- The Earned Income Tax Credit, which provides important tax relief for low-income working Americans
- The Low-Income Housing Tax Credit that encourages businesses to invest in affordable housing
The path ahead
Most Republican members of Congress who have historically opposed large deficits are expected to support the bill. Very few or no House Democrats are expected to back it.
Meanwhile in the Senate, the Senate Finance Committee, chaired by Sen. Orrin Hatch (R-UT), may release its tax bill later this week, and there are expected to be some differences from the House version. It’s unclear whether the committee will consider the bill before or after Thanksgiving.
Once the House and Senate approve the legislation, any differences will need to be negotiated, after which votes will be taken on identical bills.
Stay tuned for more details as they emerge, as well as opportunities to take action.