December 18, 2017
House/Senate Conference Committee’s Tax Compromise
House and Senate Republicans ironed out the differences on their tax overhaul bills Friday, agreeing on a sweeping plan that provides a major tax cut for corporations but raises taxes and health care premiums for millions of older Americans. The legislation would also increase the nation’s deficit — putting Medicare and other programs that benefit the older population on the chopping block.
The compromise plan, expected to be approved by the House and Senate early next week and signed by President Trump before Christmas, permanently lowers the top corporate tax rate from 35 percent to 21 percent. But individual rate cuts, including a reduction in the top tax rate from 39.6 percent to 37 percent, specifically benefitting the wealthy, would expire in 2025.
Other tax brackets would change as well, and the $4,050 personal exemption would be eliminated. But the legislation would nearly double standard deductions to $12,000 for individuals and $24,000 for married couples filing jointly. If you are a family of 3 you lose money on this exchange.
The tax plan maintains the extra standard deduction for those 65 and older, currently $1,250 for individuals, $1,550 for heads of households and $2,500 for couples who are both 65 and older.
The agreement does preserve the medical expense deduction, which is used by 6.3 million people with incomes below $75,000. Filers will be able to deduct medical expenses exceeding 7.5 percent of their income in 2017 and 2018. In 2019, the threshold would return to the current 10 percent level.
The plan retains a Senate proposal repealing the provision of the Affordable Care Act that requires most Americans to have health insurance — beginning in 2019. That repeal would increase the number of people without insurance by about 13 million by 2027, according to the Congressional Budget Office (CBO). Lowering the pool of insured will increase premiums in the individual market by 10 percent in most years over the next decade, the CBO noted. Those 50 to 64 would face average premium increases in the individual market of up to $1,500 in 2019.
The fallout of the plan would be even more pronounced on older Americans and the poor, as it puts Medicare, Medicaid and other safety net programs at risk. With an estimated cost of nearly $1.5 trillion in lost revenue over the next decade, the tax overhaul would trigger automatic spending cuts to key programs mandated by the 2010 “pay-as-you-go” law, including $25 billion to Medicare in 2018 alone.
The nonpartisan Joint Committee on Taxation hasn’t weighed in on the financial impact the unified plan would have on household taxes. But, in an analysis of the Senate plan, it calculated that the benefits would be fleeting. Over 60 percent of households would receive tax cuts in 2019. But by 2027, when the individual cuts would expire, the analysis found that about the same number of households would pay higher taxes or have cuts below $100.
Among Americans 65 and older, more than 5 million would get no tax break in 2019 and 5.6 million would see no tax decrease by 2027.
Here’s a look at some of the other provisions that would also affect older taxpayers:
Tax rates. Individual tax brackets would be set at 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent, and would expire in 2025.
State and local taxes. Taxpayers get to deduct state and local taxes, which can include property taxes, income taxes or sales taxes. But the deductions would be capped at $10,000.
Alternative Minimum Tax (AMT). The corporate AMT is repealed but remains for individuals and couples. For individuals, both the exemption amount and the exemption amount phase-out thresholds are increased.
Mortgage interest. Deductions on home mortgage interest are capped to new loans of $750,000. Interest on home equity loans would no longer be deductible. The provision expires in 2025.
Charitable deductions. The deduction remains, and the plan increases the amount taxpayers could claim. But the provision expires in 2025 and since more people will be taking the standard deduction it is expected that charitable donations will be SEVERELY cut.
Estate tax. The plan nearly doubles the amount of inherited wealth exempt from tax to about $10 million from a current $5.6 million. The increase expires in 2026.
Child tax credit. Households would get up to a $2,000 per child credit, up from $1,000 now.
Student loans. Taxpayers would still be able to deduct up to $2,500 in interest.
House Speaker Paul Ryan has reiterated that he intends to go after “entitlements” in 2018 admitting that the bill is a stepping stone for taking aim at earned benefits.
Within the past week, a slew of other lawmakers have indicated they agreed with cutting earned benefits or were open to the idea including Sens. John Thune (R-SD), Roy Blunt (R-MO.), Bob Corker (R-TN), Ron Johnson (R-WI), and Lamar Alexander (R-TN), and House Ways and Means Committee Chair Kevin Brady (R-TX). Sen. Jeff Flake (R-AZ) even brought up chained CPI when voicing his support.
The Senate intends to vote on the new plan Monday and send it to the House on Tuesday. If passed, changes to the tax code will take effect January 1.