GOP Tax Overhaul Eliminates Medical Deduction

November 03, 2017

Taxpayers would no longer be able to deduct medical expenses after the 2017 tax year under the proposed Republican tax overhaul plan, introduced in the House yesterday.

The elimination of the medical expense deduction is one of the few provisions in the Tax Cut and Jobs Act that would directly affect healthcare. However, critics think the bill, which would add $1.5 trillion to the federal deficit over the next 10 years, could set the stage for massive Medicare and Medicaid cuts to make up for lost tax revenue. 

Right now, taxpayers who itemize their deductions on their 2017 return can deduct medical and dental expenses that exceed 10% of their adjusted gross income.

Although some groups say the change would impose a financial burden on millions of Americans, the House Ways and Means Committee rejected that concern, saying in a related fact sheet that other provisions would offset this loss.

"Our bill lowers tax rates and increases the standard deduction so people can immediately keep more of their pay checks — instead of having to rely on a myriad of provisions that many will never use and others may use only once in their lifetime," the committee stated.

The Congressional Joint Committee on Taxation estimated that reduced tax rates for individuals would save taxpayers some $1 trillion over 10 years, according to a summary of the bill from Ways and Means Chairman Rep. Kevin Brady (R-TX).  The proposal to increase the standard deduction from $6350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly would save them another $920 billion over 10 years. These and other changes would mean $1200 less in annual taxes for a family of 4 making $59,000, the summary stated.

Another provision of the bill would no longer allow individuals to deduct their contributions to a so-called Archer Medical Savings Account (MSA) or exclude employer contributions from income. These individuals would be able to roll over their MSAs into a health savings account, which is more taxpayer- friendly, according to the bill summary. The effect on federal revenue would be insignificant.

A third healthcare-related provision of the bill takes away a tax break from pharmaceutical companies that are developing drugs for rare diseases. Right now, a company can claim a tax credit equal to half of its expenses for clinically testing such drugs. Erasing this credit would increase tax revenue by $54 billion over 10 years.

Greater Economic Growth Will Help Pay for Tax Relief, GOP Claims

If the Tax Cuts and Jobs Acts passes the Republican-controlled House, it then would go to the Senate, where the GOP holds 52 of 100 seats. It takes 60 votes to break a filibuster, so Senate Democrats and independents acting in unison can block Republican legislation, but Congress last month approved a budget resolution that uses a parliamentary procedure called reconciliation to make the tax bill immune to a Senate filibuster (the House doesn't allow this blocking tactic). Senate Republicans would need only 50 votes to pass the tax bill, as Vice President Mike Pence presumably would cast the tie-breaker vote.

That budget resolution, passed by both chambers of Congress, allows lawmakers to add $1.5 trillion over 10 years to the deficit.

Besides paving the way for the tax cuts, the Republican budget resolution

also calls for reducing Medicare and Medicaid outlays by roughly $470 billion and $1 trillion, respectively, over the next 10 years. Together, those cuts roughly match the $1.5 trillion in deficit spending allowed by the budget resolution. Congressional Democrats and other opponents of the Republican plan are crying foul.

"A massive tax cut that explodes federal debt opens the door to future cuts," said Frederick Isasi, executive director of the consumer group Families USA, in a news release. "When that happens, Medicaid, support for private health insurance for working families, and Medicare will be prime targets that Congress will use to plug the fiscal hole they have created."

Republican lawmakers refute the idea that massive tax cuts will lead to shredded safety-net programs. The Ways and Means Committee summary of the Tax Cuts and Jobs Acts explains that "pro-growth tax reform" will trigger economic growth "that will ultimately help pay for much needed tax relief over the long term."

Follow Robert Lowes on Twitter @LowesRobert


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