How Tax Reform Proposals Would Impact America’s Older Adults
Tax reform is speeding through Congress, and the rapid pace means few people understand what’s in the latest proposals and how they would be affected.
The legislation, totaling more than $5 trillion over 10 years, has tremendous implications for our nation. Yet, the House passed its bill just two weeks after it was introduced, without a single hearing.
Below is our effort to provide the most reliable, factual information available about how current versions of the tax proposals would affect older Americans.
First, here’s a timeline of where the proposals stand in Congress:
- Last week, the full House and the Senate Finance Committee passed different versions of their legislation.
- Next week, the full Senate will try to pass its bill.
- If the Senate is successful, the two chambers will then iron out differences and try to pass an identical bill to send to President Trump before Christmas.
NCOA and other aging groups are opposed to the current tax bills and hope to stop them in the Senate. Key Republican Senate targets include Sens. McCain and Flake (AZ), Corker (TN), Collins (ME), and Murkowski (AK). Advocacy from those living in these four states are particularly important.
NCOA has two broad concerns with the Senate bill:
- It would explode the budget deficit by more than $2 trillion over 10 years, which will likely lead to major cuts in senior programs such as Medicare, Medicaid, and the Older Americans Act.
- The vast majority of the tax cuts will go to large corporations and wealthy individuals—not middle-class and lower-income Americans who need help the most.
Massive budget deficit increase threatens senior programs
The most reliable, nonpartisan estimates on the tax proposals’ impact are from the Joint Committee on Taxation (JCT), the official scorekeeper for tax proposals. JCT estimates the Senate tax bill will increase the federal deficit by more than $1.4 trillion over 10 years. However, many experts believe the actual increase will be over $2 trillion due to various accounting gimmicks like arbitrary phase-ins and expirations that mask the true cost.
Recent statements from Republican leaders, including House Speaker Ryan (WI), Ways and Means Committee Chair Brady (TX), and Budget Committee Chair Black (TN) 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, 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 Older Americans Act.
Republicans say the tax cuts will boost economic growth, which will offset the deficit. However, former Chairman of the Council of Economic Advisors Jason Furman stated that “no serious analyst has ever claimed that tax cuts generate enough growth to pay for themselves.” And the Committee for a Responsible Budget stated that to claim otherwise “goes against the projections of economists and independent forecasters from across the spectrum.”
The nonpartisan Congressional Budget Office (CBO) also indicated last week that due to budget sequestration rules, passage of the House tax bill would automatically trigger $136 billion in program cuts next year, including $25 billion in Medicare cuts. Other programs subject to significant funding cuts include the Prevention and Public Health Fund and the Social Services Block Grant, which funds home care and adult protective services in many states. Programs would be subject to automatic funding cuts every year for a decade.
Tax cuts would not primarily help the middle class
The JCT also found that middle-class Americans are not the primary beneficiaries of the tax cuts passed by the House. It states that over 80% of the tax cuts are delivered to corporations, business owners, and wealthy families, with 45% of the benefits going to households making over $500,000.
The biggest, most expensive tax cut proposed is to reduce the rate for corporations from 35% to 20%. Eliminating the estate tax only benefits those with estates over $5.5 million, and eliminating the Alternative Minimum Tax provides a tax break of $770 billion primarily to wealthy individuals.
JCT also concluded that in 2027 under the House bill, 73 million taxpayers with incomes of $10,000-$50,000 would collectively pay almost $3 billion more in taxes. AARP has estimated that in 2018, 6.3 million seniors aged 65+ would either pay more in taxes or receive no tax relief, and by 2027, this number would rise to 10.2 million and almost 5 million older Americans would pay higher taxes.
The Senate bill would end tax cuts for individuals after 2025, while corporate and other business tax cuts would be permanent. The JCT found that in 2027, most Americans with incomes below $75,000 would pay more in taxes. Even in 2025 when all the tax cuts are in effect, according to the Center on Budget Policy and Priorities, “high-income households would get the largest tax cuts as a share of after-tax income, on average, while households with incomes below $30,000 would on average face a tax increase.”
5 other areas of concern to seniors
NCOA also is concerned with the following provisions that would have negative consequences for older Americans:
- Repeal of the ACA individual health insurance requirement
The Senate bill would repeal the Affordable Care Act (ACA) individual health insurance requirement, which will increase insurance premiums by about 10% and result in 13 million Americans losing 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.
- Reductions in charitable giving
Although both bills maintain the current charitable contribution deduction, other provisions would significantly reduce charitable giving. According to JCT, doubling the standard deduction, as both plans propose, 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. The nonpartisan Tax Policy Center estimates that eliminating the estate tax, as proposed in the House bill, would reduce charitable giving by an additional $4 billion. Both of these would make it increasingly difficult for nonprofit organizations to serve the growing number of older Americans in need. Groups that advocate on behalf of nonprofits are calling for a universal deduction to permit non-itemizers to deduct their contributions up to a limit.
- Repeal of deductions for state and local taxes
The Senate bill would eliminate all deductions for state and local taxes, which would make it more difficult for state and local governments to support senior programs. In many communities, this could result in funding cuts for senior centers, transportation, and senior meals programs. Federal programs like Medicaid and the Older Americans Act—which have state-funded matching requirements—also could be harmed.
- Use of the “chained” CPI to index tax bracket thresholds
According to the JCT, both bills would increase 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 would be pushed into higher tax brackets more rapidly due to inflation. These tax increases grow significantly over time, with $2 billion in increases in 2019, about $30 billion in 2027, and over $500 billion from 2028-2037. Senior advocates are also worried that using the chained CPI to index tax brackets increases the chances that Social Security cost of living adjustments will be cut the same way in the future.
- Repeal of the medical expense deduction
The House bill repeals 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. One-third of taxpayers earning $50,000-$75,000 use this deduction, as do half of those earning $75,000-$100,000. The Senate bill does not include this proposal.
Watch your email next week for details about actions you can take to make your voice heard.