Two Proposed Tax Changes That Will Hurt Frail Older Adults

Two of the many major changes House Republicans would make to the federal tax code could make it harder for fail older adults, younger people with disabilities, and their families to receive badly-needed services.

Repeal of the medical expense deduction would severely hurt those who face major uninsured expenses for medical treatment or long-term supports and services, including care at home or in facilities. At the same time, other proposals that would cut the tax benefits for charitable giving would hurt community-based non-profits that often provide direct services to seniors and younger people with disabilities.

Medical expense deduction

Only about 6 percent of households claimed the medical expense deduction in 2015. The average deduction for middle-income households was about $10,000 though for many their out-of-pocket costs   were far higher than the average.

In 2015, about 8.7 million people claimed the medical expense deduction and it reduced their taxes by about $10 billion. About 40 percent was claimed by households making between $60,000 and $200,000, according to the IRS.

Who claimed the deduction? Imagine a family with a child who has cystic fibrosis. They are faced with high medical expenses, only some of which are covered by insurance.  And as insurance becomes more expensive and as high-deductible policies become more common, out-of-pocket costs will only rise.

Imagine an adult with multiple sclerosis or a developmental disability. She can be a productive, tax-paying worker, but needs a personal attendant to get started each morning.  Or imagine a senior who requires extensive home health care.

Raise it, or kill it?

The medical expense deduction also benefits those living in nursing homes, where the average annual cost now approaches $100,000, and some who live in assisted living facilities or continuing care communities (though they must meet certain rules to claim the deduction.)

Congressional Republicans have been schizophrenic about the deduction. For many years, it was available to those whose out-of-pocket medical expenses exceeded 7.5 percent of their adjusted gross income.  As part of the 2010 Affordable Care Act, President Obama and congressional Democrats raised the threshold to a less generous 10 percent—a move Hill Republicans sharply criticized. Many of the bills they introduced this year to replace the ACA would have restored the 7.5 percent threshold. Yet, they are now proposing to repeal the deduction entirely.

Charitable giving and frail seniors

Proposals that would indirectly reduce tax incentives for charitable giving would also hurt frail older adults and younger people with disabilities. Many of those living at home receive services from non-profits, including transportation, adult day and nutrition programs, and information services. The organizations that provide these services often receive some government funding and may also charge clients fees for some services. But because these revenues fall far short of paying for the full cost of these programs, the non-profits that run them rely heavily on charitable giving to make up the difference.

Estate taxes and charity

The House tax plan includes two big changes that would indirectly limit tax benefits for people who contribute to non-profits. The first would roughly double the size of the standard deduction to $12,000 for singles and $24,000 for married couples. Because about 90 percent of households have itemized deductions that are less than that, very few would itemize. Thus, they’d lose their tax deduction for giving to their favorite non-profits.

At the same time, the bill would end the tax advantage for very wealthy contributors. They often make gifts to reduce the size of their taxable estates. However, the draft House bill would first nearly double the size of estates that are subject to the estate tax to $10 million ($20 for couples). Then, after five years, it would repeal the tax entirely.

Trade-offs

Of course, many non-itemizers already contribute to charity without getting a tax deduction. And many would continue to do so. But the larger gifts that non-profits rely on to make budget could dry up. And with them, so would many critical services for frail elders and younger people with disabilities.

Backers of the bill say it includes an important trade-off. Lower tax rates and that higher standard deduction would give people more money to spend as they want—either for direct care or for other services. But even on average, the tax cuts for middle-income households would be modest, far smaller than the tax benefits they’d lose if they require high-cost medical or personal care.

The tax bill will go though many changes over the next several months. And while it is not possible to predict the fate of these provisions, they could have severe consequences for those with chronic disease or disabilities, including older adults.

Speak Your Mind

*