With the Republican Congress and President Trump determined to push thru their tax bill at warp speed, there has been much discussion about how it will provide a big tax cut for corporations and the wealthy and super wealthy while it could hurt the poor and middle class who either won’t see much of a decrease in their tax bill or in some cases may see their tax bill actually go up. But, how might a new tax bill specifically affect seniors?
Keep in mind that although the House of Representatives has passed its version, the Senate has yet to vote on its proposed bill which may happen this week. If there are differences between the two bills (which there likely will be) then the two houses must get together to reconcile their versions which must then be voted on by both houses of Congress. If this reconciled version is approved then it will be sent to the President who must approve it before it becomes law.
A lot can happen in the journey from here to there. Thru the negotiation process certain provisions that are now being discussed can be taken out while other provisions never previously mentioned could end up being inserted. Nevertheless, let’s take a look at some aspects that appear likely to be included and which could affect seniors.
Some longtime deductions look like they would phased out under the new tax bill. One such deduction is the medical expense deduction. Many seniors have high medical expenses as a result of needing long term care, either at home or in a facility. With the cost of nursing home level care in our area averaging $130,000 per year or more, it means that many seniors can easily meet the threshold that allows them to deduct these expenses from their income before calculating their income tax.
This deduction is especially important to those forced to substantially drain their retirement accounts to pay for care. Withdrawing money from a tax deferred account such as an IRA or 401k normally is taxable. The medical deduction, however, permits many seniors to avoid paying income tax on this money. That allows the funds to last longer before needing to qualify for Medicaid. Taking away this deduction will also impoverish a healthy spouse who will have less money to live on.
Another deduction that looks like it could be eliminated or severely curtailed is the deduction for state and local taxes. New Jersey is ranked at or near the top in terms of the amount of real estate and state income taxes we pay. This deduction, therefore, is very valuable to New Jersey residents – including seniors – who own their homes. Taking away this deduction would affect not just seniors who currently need care but also healthy seniors.
Seniors would feel an immediate impact from losing these deductions, however, there is a longer term effect that is not as direct. Everyone agrees the tax cuts promised to corporations and the wealthy will cause the national deficit to dramatically increase. Republicans claim that a tax cut will pay for itself, meaning more money for corporations to invest in their businesses which will expand the economy and thereby increase tax revenue. Most economists agree that the GOP is overstating this effect (they point to the last tax cut in 1981 when the same thing was claimed but didn’t materialize).
If tax bill critics are right, then it stands to reason that less tax revenue will mean less money available for government programs. The result will be a reduction in funding for programs like Medicaid, Medicare and Social Security – programs which disproportionately affect seniors.
Of course, we don’t know exactly what such cuts would look like but less money means fewer benefits which isn’t a good thing for seniors. As I stated previously, a lot can change between the current version and what actually becomes law but it doesn’t look like the final version under any circumstances will be a net positive for seniors. If Republicans meet their timetable we should know before the end of this calendar year what 2018 and beyond will look like.