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House Bill Would Mean Tax Hike for Some Seniors

Millions over 65 would lose benefits such as the medical expense deduction

By
Gary Strauss
 
AARP
Comments
Published November 16, 2017

House Republicans approved a massive $1.5 trillion tax overhaul package Thursday, the first step in the majority’s plan that would provide big tax rate cuts to corporations but raise taxes and health care costs for millions of older Americans.

The House approved the Tax Cuts and Jobs Act by a 227-to-205 vote. All House Democrats voted against the measure. They were joined by 13 Republicans, virtually all from high-tax states, including New York, New Jersey and California, which would be hardest hit by measures that would eliminate or cap popular tax breaks on mortgage interest and state and local taxes.

The measure would hurt older Americans in a variety of ways. It would eliminate the medical expense deduction, which allows taxpayers to deduct out-of-pocket medical and health care expenses that exceed 10 percent of their income. That would result in a tax increase for millions of older Americans. Nearly three-quarters of the taxpayers who claim this deduction are over 50 years old, and 70 percent have annual incomes below $75,000, according to AARP’s Public Policy Institute.

Supporters of the House bill argue that it would cut taxes for many low- to middle-income Americans and that lowering the top corporate tax rate from 35 percent to 20 percent would spur economic growth. But critics say most of the benefits would go to businesses and the wealthy.

An AARP analysis found that if the House bill became law, 1.2 million taxpayers over age 65 would actually see their taxes increase in 2018, and that the number would swell to 4.9 million by 2027. The analysis also showed that more than 5 million older Americans would not see any tax relief.

“Changes to the tax code should not result in a disproportionate, adverse impact on older Americans,’’ said AARP Executive Vice President Nancy LeaMond. “Efforts to restructure all or part of the federal tax system should recognize the importance and maintain incentives for health and retirement security.”

The House bill would cut the number of tax brackets from seven to four, setting new tax rates at 12 percent, 25 percent and 35 percent, and keeping the top bracket at 39.6 percent.

Standard deductions would rise from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples. But the bill would eliminate the added standard deduction for taxpayers age 65 and over, which is $1,250 for individuals and $2,500 for couples. The bill would eliminate all personal exemptions. The measure also would repeal the alternative minimum tax, which affects higher-income earners.

Taxpayers’ ability to deduct state and local taxes would be sharply curtailed. Property owners could write off up to $10,000 in state and local property taxes, but the deduction for state and local income and sales taxes would disappear. Mortgage interest deductions would be capped at the interest on $500,000 in loans, compared with the current $1 million, although homeowners with existing loans would not be affected. 

Action on the tax overhaul now switches to the Senate, which is expected to begin debate on its measure the week after Thanksgiving.

AARP will continue to urge that any tax overhaul treat older Americans more equitably, including by retaining the medical expense deduction and the standard deduction for the elderly.  AARP will also continue to push for the bill to include the Credit for Caring Act, which would provide a new federal tax credit of up to $3,000 to family caregivers to cover lost out-of-pocket expenses, such as adult day care. In 2016, family caregivers spent nearly 20 percent of their income, on average, providing care for an adult relative or friend.

AARP also opposes the inclusion in the Senate proposal of a repeal of the requirement that most Americans have health insurance coverage. Abolishing that requirement would raise premiums for health insurance by about 10 percent and add 4 million people to the uninsured rolls by 2019 and 13 million by 2027, according to an analysis by the nonpartisan Congressional Budget Office.

“The amendment to repeal the individual health coverage requirement will leave millions of Americans uninsured, destabilize the health insurance market, and lead to spikes in the cost of premiums,” LeaMond said.

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