FEATURE COLUMN: New tax law has impact on seniors

By David Staples
Certified Senior Advisor

Whether the new Tax Cuts and Jobs Act negatively or positively affects individual seniors depends on personal circumstances, but there are ramifications for older adults as a group.
Positives include the fact that tax brackets are mostly lower, there are still seven tax brackets for taxable income. These expire at the end of 2025.

The fact the new standard deduction is $12,000, up from $6,350 for single filers and $24,000 deduction, previously $12,700, for married filing jointly can be a positive or a negative. Filers can no longer claim a personal exemption of $4,050, which reduces the number of people filing itemized deductions. The new tax bill keeps the additional $1,600 deduction for single filers who are over 65 or blind. A married couple who both qualify earns a $2,600 deduction.
The deduction for medical expenses stays, which is used by almost 5 million taxpayers age 65 and over. In addition, it reduces the cutoff from 10 percent to 7.5 percent for 2018 and 2019, and grants the 7.5 percent level retroactively to 2017 filers.
Those who are sole proprietors or have an LLC have a standard income deduction of 20 percent. But there are income limits, and the deduction ends after 2025.
The official corporate tax rate has permanently changed from 35 percent to 21 percent, and international corporations can bring back cash socked away overseas for an even lower amount. While some companies are giving employees one-time bonuses, some are raising wages. Furthermore, older Americans with retirement accounts invested in the stock market may see their money compounding faster than before if the country’s GDP increases and earnings follow suit. Theoretically, dividends will increase, corporate buybacks will increase scarcity, and stocks will shoot higher.
A negative will be the increase in the federal deficit by about $1.1 trillion.
Republicans (who currently control Congress) have said that their plan to counteract deficit increases includes cutting programs like Medicaid, Medicare, the Older Americans Act and Social Security.
The budget outline passed last fall proposed $1 trillion in cuts to Medicaid and another $473 billion to Medicare, while $800 billion would come out of non-defense discretionary programs, such as the OAA.
The bill eliminates the Affordable Care Act individual mandate, which taxed filers (mostly young and healthy) without health insurance. The approximately 3.3 million Americans aged 55-64 who get their health care under the ACA will pay premium hikes of about $1,000 a year. This provision is likely to cause 13 million Americans to lose their health insurance.
In addition, the estate tax exemption is doubled, escalating from $5.5 million to $11 million per person, which means the wealthy are more likely to pass down large amounts to heirs rather than use it for charity.
The tax act reduces taxes by approximately $1,600 on average this year, but the biggest cuts go to households making between $308,000 and $733,000.
Middle income households can expect an average $900 cut, while lower earners will see less.
Nearly a quarter of older married couples and almost half of single seniors relied on Social Security for 90 percent or more of their income in 2017, according to the Social Security Administration.
These individuals pay little or nothing in income tax, so why are groups representing older adults, like the AARP, up in arms over the new law?
First, because the individual cuts are temporary.
Second, the changing inflation index gets a thumbs down.
Third, there are worries that seniors in high-tax states will be hurt by capped deductions.
But these pale in comparison to what may be the law’s greatest impacts on health insurance and government programs.
Advocates for seniors worry that future effects, potentially the most harmful to older adults, will be glossed over by relatively small paycheck increases this year.
Their biggest concerns are changes to Medicare and Medicaid that could be triggered by the higher federal deficit, and the erosion of health care coverage and increased premiums resulting from the elimination of the individual mandate.
“The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid, and other important programs serving older Americans,” according to a letter sent by the AARP to Congress.
These cuts would all be hardest on the most vulnerable population of seniors who make do with social security and little else. Thus, the overarching effect of the new tax law is to transfer wealth from the poor to the affluent. Senior advocacy groups remain vigilant as the effects of the tax law unfold.