President Trump signed into law a massive tax overhaul bill on Friday, which deeply cuts tax rates for businesses but provides only temporary tax relief for most households and will likely raise health care costs for millions of older Americans. The legislation would also increase the federal deficit by $1.5 trillion, putting at risk critical programs vital to older Americans.
The tax measure was passed this month by the Republican-led Senate 51 to 48 and the House 224 to 201, with no Democratic support.
Earlier this week, Congress voted to waive a law that would have led to cuts to Medicare and other programs vital to older Americans as a result of the tax overhaul. Under a 2010 “pay-as-you-go” law, also known as PAYGO, the jump in the deficit would trigger automatic spending cuts in several programs, including Medicare. According to the nonpartisan Congressional Budget Office (CBO), PAYGO requires total cuts of $136 billion in 2018, including $25 billion to Medicare alone.
“Such sweeping cuts would be detrimental to an already vulnerable population,” said AARP Chief Executive Officer Jo Ann Jenkins in a letter to Congress earlier this month. AARP urged Congress to waive required cuts to Medicare under PAYGO, as seniors could lose access to their doctors and local hospital services.
The tax overhaul legislation cuts the corporate tax rate from 35 percent to 21 percent. It eliminates personal exemptions and sets seven tax brackets, topping out at 37 percent. It nearly doubles standard deductions to $12,000 for individuals and $24,000 for married couples filing jointly. But the changes to individual tax rates would end after 2025, while the corporate tax break is permanent.
While many Americans would see lower taxes, most households would get little to no tax breaks by the time the individual rates expire. An analysis by Congress’ nonpartisan Joint Committee on Taxation released this week finds that the plan would lower taxes for most Americans in 2018, but noted that most of the gains would go to wealthy households. Moreover, once individual cuts expire, more than half of taxpayers would pay higher taxes by 2027.
Many taxpayers may have a bigger tax bill next year as new limits on deductions kick in. State and local taxes — including property taxes, state and local income taxes, and sales taxes — are capped at a total of $10,000. Deductions on home mortgage interest are limited to loans of $750,000. Interest on home equity loans would no longer be deductible.
The legislation preserves AARP-supported provisions such as the extra standard deduction for those age 65 and older and the medical expense deduction, which allows filers to deduct medical expenses exceeding 7.5 percent of their income in 2017 and 2018 (returning to its current 10 percent threshold in 2019).
Millions of older Americans would also face higher health care premium costs under the legislation. Beginning in 2019, it repeals the Affordable Care Act provision requiring most Americans to have health insurance. The CBO projects that would lead to 13 million more people without insurance by 2027. With fewer individuals in the health insurance pool, premiums in the individual marketplace would jump 10 percent in most years, according to the CBO. Those ages 50 to 64 would be especially hard hit, with premiums rising up to $1,500 in 2019 alone, according to an AARP Public Policy Institute analysis.
Another provision of the tax bill adopts a “chained” consumer price index (CPI) in the way the government gauges inflation for purposes of the tax code, which measures it at a slower rate than current methodology. While Social Security benefits aren’t addressed under the plan, the legislation could lead Congress to base future Social Security cost of living adjustments (COLAs) on the chained CPI, meaning annual increases would likely be smaller. (Such a change would require congressional legislation).
The legislation has already ignited a scramble among taxpayers, accountants, businesses and the Internal Revenue Service, all trying to determine how to deal with the most significant tax code changes in three decades before it takes effect in 2018. The IRS is preparing guidance for workers and employers, but says taxpayers won’t see the impact on their paychecks until February.