December 8, 2017 Federal Policy Update
Congress Gives Itself Two Weeks More on FY 2018 Budget
Tax Cuts Head to Conference
In the final weeks of the year, Congress is racing to finish up several big-ticket items, leading to a busy schedule and shifting deadlines.
FY 2018 Funding
As recently explained in our December 4 Advocacy Alert, the current continuing resolution (CR) expires tonight at midnight. To avoid a government shutdown, Congress needed to either finalize the FY 2018 funding levels for all discretionary programs or extend the CR until they can do so. They’ve opted for the latter, and both chambers passed a new CR last night that would run through December 22.
And yet they won’t be finalizing the appropriations levels before December 22; what Congress first needs to do is reach a “budget deal,” wherein both chambers and both parties agree on the overall amount of spending. Since what Democrats and most Republicans want is to raise the discretionary spending caps in current law, the current negotiations are on what that amendment to the Budget Control Act of 2011 (BCA) looks like. In other words, as has been done every two years since the BCA took effect, Congress will override the law to give appropriators more funding to distribute.
After that deal is struck, hopefully by December 22, we expect there will be yet another CR, to provide Congress with at least another 3-4 weeks to then finalize specific funding levels once it’s clear how much they can spend. The final CR will likely go through January or perhaps longer, so state agencies won’t see the allocations until several weeks to a month later.
n4a is urging Congress to strike a bipartisan budget deal to raise the arbitrary BCA caps, alleviating—at least to some degree—the continued erosion of critical domestic discretionary programs like the Older Americans Act. The n4a Board of Directors, in town for the winter board meeting, went to Capitol Hill on Wednesday to advocate for that deal with their Senators and Representatives.
And as last week’s Alert detailed, advocacy is needed to secure the Older Americans Act Title III B Supportive Services increase called for in the House spending bill (a $14 million boost) and the continued funding for SHIP in the Senate version (vs. the House’s elimination of the program), so please continue to press your lawmakers in both chambers. We can’t let up our advocacy until the ink is dry on those final appropriations levels!
After last week’s Senate approval of its tax cut measure, Republican leadership in both chambers is moving as quickly as possible to get to “conference,” the stage of policymaking when differences between House and Senate bills are resolved. Assuming a smooth negotiation and final passage in both chambers, the goal is to meet the President’s demand of a bill arriving on his desk before Christmas.
n4a remains opposed to this tax cut measure, as it will undermine critical programs and supports necessary to ensure the safety and security of America’s older adults, caregivers and their families at a time when our nation is aging rapidly and services are increasingly necessary.
By driving up the federal deficit by at least $1.5 trillion, lawmakers are expected to propose deep spending cuts next year as a way to “offset” deficit increases. We know that this strategy isn’t solely conjecture—Republican leaders have expressed their intent to call for significant spending cuts as soon as next year to federal health care and social services programs to offset the deficit increases resulting from tax cuts. (To see the details of those proposed cuts, revisit n4a’s October 27 Legislative Update on the FY 2018 budget resolution.)
Thank you to the many advocates who used our alerts of November 17 and November 28 to weigh in and alert their community stakeholders to the risk posed by this massive tax cut measure. It’s not too late and we can’t give up yet—keep educating your grassroots networks and raising your concerns with lawmakers!
In addition to broad budgetary implications, the tax proposals advancing through the House and Senate would also directly affect millions of low and moderate-income older adults, and the local AAAs and other CBOs that serve them. n4a encourages aging advocates to continue outreach to oppose threats to federal aging and health care programs that could result from a tax cut bill. While not exhaustive, what follows are summaries of key sections of the bills that we believe would affect older adults and aging programs.
What the House and Senate tax cuts bills have in common:
The big winners are very wealthy individuals and corporations. Both bills reduce the corporate tax rate from 35 percent to 20 percent. Details vary among economic estimates, making it difficult to get exact answers, but multiple independent analyses indicate that both bills give the majority of short and long-term benefits from the $5.9 trillion in tax cuts to the top 10 percent of income earners. According to one independent report1 under the House bill, the richest one percent of income earners would receive 31 percent of the benefit in 2018, which would grow to nearly half of the total benefit by 2027.
According to the same report, in 2018 the average benefit from the House bill for low and middle-income earners—including the majority of adults 65 and older making less than $40,000 annually—could be as little as $2.50 to $14.40 per week respectively ($130 to $750 annually). Additionally, the individual tax rate cuts in the current proposals expire in 2025, so a significant percentage of older adults could end up paying more in taxes than under current law at that point, assuming that the 2017 tax cuts were not extended. Given that a majority of Medicare beneficiaries currently earn less than $26,000 per year, any increased tax burden on these individuals would be difficult to absorb.
Repeal of the state and local tax deduction (SALT). Itemizers in higher-tax states will be penalized by the loss of this longstanding deduction, which allows taxpayers to avoid double taxation on what they pay in either state and local income or sales taxes. Thirteen Republican House members from the east coast and California voted against the bill because of this significant policy change.
Both bills allow the itemization of real estate/property taxes, but the value would be capped at $10,000. Combined with the proposed limitations on mortgage interest deduction, some are forecasting a negative effect on housing values, particularly in high-cost areas.
Other commonalities between the bills include nearly doubling the standard deduction and the elimination of personal exemptions, further complicating the landscape for the 30 percent of households that itemize. Both bills also double the amount exempted from the estate tax, and increase the child tax credit.
According to a report by the independent Tax Policy Center, nonprofits could lose up to $24 billion in 2018 alone because the incentive to itemize charitable deductions would be significantly reduced by an increased standard deduction. With a nearly doubled standard deduction, the report estimates that the number of filers who itemize their returns would fall from 46 to 13 million. The repeal of the estate tax alone could reduce charitable bequests by $4 billion.
Differences between the bills:
The Senate bill makes deeper cuts to individual tax rates than the House, but does not reduce the number of brackets down from the current seven.
The House bill eliminates the medical expense deduction, a particularly worrisome change for families managing high medical or long-term care costs. The Senate bill actually allows more households to use the medical expense deduction by lowering the threshold to 7.5% for two years, then restores it to the current 10% rate.
The Senate bill eliminates the individual mandate in the Affordable Care Act. The Congressional Budget Office (CBO) estimated that elimination would save the federal government nearly $340 billion in premium support costs for people who choose not to purchase insurance. The Senate has proposed using this savings as an offset to pay for permanently reducing the corporate tax rate.
However, the CBO also estimated that removing the mandate would mean that younger, healthier individuals would be more likely to decline health insurance coverage, which would skew insurance risk pools and ultimately drive up costs for older, sicker individuals—specifically people age 55-64 who don’t yet qualify for Medicare. This shift in the risk pool could drive up costs and put affordable coverage options out of reach for older adults, which means they may forgo necessary medical care and reach Medicare eligibility with more severe health care needs. For older individuals who choose to purchase insurance coverage, the increased cost of health insurance could reduce or completely eliminate any of the benefits included in the tax proposals.
n4a will continue to educate lawmakers about the importance of cost-effective, efficient non-defense discretionary programs such as the Older Americans Act and other key aging programs, as well as Medicaid, Medicare and critical income-support programs, to ensuring that older adults age with dignity in their homes and communities. Take action today!
1 Institute on Taxation and Economic Policy. (November 2017). Richest Americans Benefit Most from The Tax Cuts and Jobs Act. Retrieved November 21 from https://itep.org/wp-content/uploads/housetaxplan.pdf.
View this Legislative Update as a PDF.