En español | A sweeping tax overhaul unveiled by House Republicans Thursday would affect millions of older Americans by eliminating several popular tax deductions, rewriting the income tax brackets for individuals and cutting corporate taxes.
House Speaker Paul Ryan, R-Wis., said the Tax Cuts and Jobs Act would boost economic growth by cutting the corporate tax rate from 35 percent to 20 percent. The measure would also decrease taxes for many low- and middle-income workers. A typical family of four with a median annual household income of $59,000 would save $1,182, he said.
But the plan would also eliminate the medical expense deduction, which would mean a tax increase for many older Americans. “Eliminating the medical expense deduction amounts to a health tax on millions of Americans with high medical costs — especially middle-income seniors,” said AARP Executive Vice President Nancy LeaMond. “AARP is strongly opposed to this provision.”
Other major provisions of the bill:
- The number of income tax brackets would collapse from seven to four. The new brackets would be set at 12 percent, 25 percent and 35 percent, with the top rate of 39.6 percent unchanged.
- Standard deductions would nearly double, from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. But personal exemptions would be eliminated.
- Mortgage interest deductions would be capped at mortgages of $500,000, compared with the current $1 million, although the tax benefits of existing loans would not be affected.
- The ability of taxpayers to deduct state and local taxes would be sharply curtailed. The deduction for state and local income and sales taxes would disappear, and property owners could write off up to $10,000 in state and local property taxes.
- Child tax credits would rise to $1,600 from $1,000.
- A new $300 credit would apply for each parent and adult dependent, but the credit would end in 2022.
- The alternative minimum tax, which affects mostly high-income households, would be abolished.
- Beginning in 2024, the estate tax would be eliminated. Until then, as much as $11 million of an estate would be tax exempt, up from $5.5 million.
House Republicans decided against tinkering with 401(k) retirement plans. Workers 50 and older can still contribute up to $24,000 a year in pretax income.
“AARP will carefully evaluate the legislation introduced today and communicate with our members how the proposals may affect them,” said LeaMond. “We urge Congress to maintain tax incentives that promote retirement savings, retirement security and help offset the high out-of-pocket health care costs of older Americans. The tax system should also produce sufficient revenue to pay for important priorities, including Medicare, Medicaid, other programs important to older Americans, and maintain fiscal stability.”
Ryan said Congress intends to send the tax plan to the Senate before Thanksgiving and to the president’s desk by year’s end. But it’s likely to be hotly debated and tweaked in the weeks ahead. Home builders and mortgage lenders, for example, fear that changes in mortgage interest and property tax deductions would crimp the housing market. And many House members in states with high income taxes, such as New York, New Jersey, Illinois and California, oppose the cuts to state and local deductions.
“This isn’t the last product,’’ said Rep. Carlos Curbelo, R-Fla. “This is just the kickoff to this tax reform exercise.”