Last month, the Tax Cuts and Jobs Act passed the U.S. Congress. This legislation represents the most sweeping change in the U.S. tax code since 1986.Now that the act has been passed, we are all asking: How will this affect me?The answer, as you might imagine, depends on your age, your income, and your geographical location.For purposes of this post, we want to summarize some of the ways this bill might affect older adults. Rather than go into a deep dive of the legislation, we’ll highlight a few key aspects of the bill. For a couple of summaries of the legislation, go here and here.
- The tax bill cuts taxes across the board for virtually all Americans. The amount you’ll receive back depends largely on your income. According to analysis from the Tax Policy Institute, “compared to current law, taxes would fall for all income groups on average in 2018, increasing overall average after-tax income by 2.2 percent…with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution.” Also keep in mind, these tax rates sunset at the end of 2025.
- The bill retains the medical expense deduction, which allows individuals to deduct qualified medical expenses once they reach a certain percentage of their annual income. In fact, the medical expense deduction threshold is actually lowered to 7.5 percent of annual income for 2018, going back to 10 percent in 2019. The Alliance had encouraged Congress to retain this deduction after consideration was placed on eliminating it. In 2013, about 21 million Medicare beneficiaries ages 65 and older spent at least 10 percent of their income on out-of-pocket health care expenses. This will be beneficial for older adults.
- The bill also eliminates or changes other deductions, which will have impact based on state of residence and net worth. One such example is a $10,000 limit on one’s ability to deduct state and property taxes.
- While the bill cuts taxes, there are questions about how to pay for them.
The Committee for a Responsible Federal Budget estimates that these cuts could cost approximately $1.5 trillion over the next decade. Supporters of the bill argue that the benefits to the economy caused by the bill can help offset costs. However, others fear that these cuts will lead to the need for dramatic spending cuts. In the crosshairs could be programs such as Medicare and Medicaid. According to AARP, “the non-partisan Congressional Budget Office (CBO) has confirmed that unless Congress takes action, the reconciliation legislation will result in automatic federal funding cuts of $136 billion in fiscal year 2018, $25 billion of which must come from Medicare.”
- The bill repeals the individual mandate, a component of Obamacare that required individuals to purchase insurance or face a penalty. Without the mandate, an estimated 13 million people could lose coverage. Because less people are covered, insurance premiums could increase significantly for older adults.
The Alliance will be watching the impacts of this bill as we enter 2018, so follow us on Twitter to stay updated.