There are some great big, honking, ugly, nasty problems with this proposal.
The one problem I want to focus on here is one that, for some reason, hasn't been in the news. It's the elimination of the itemized deduction for medical expenses.
Look, I know that for a lot of people this is no big deal because they weren't getting much benefit from the deduction anyway but there is a class of person who will be absolutely hammered by this change. People in assisted living and nursing homes will be creamed.
Let's say that Grandma has Dementia and needs to be in an assisted living facility. The facility costs $6k/mo ($72k/yr). She has SS income of $20k/yr and a survivor's benefit from her husband's pension of $20k/yr. The rest of the money she has is in an IRA her husband left her and, because he was good about saving, there's $500k available. If she was at home she'd be able to live on the $40k without any problem but because the needs the assisted living she's now $32k short and that has to come out of the IRA.
Under current tax law she'd be able to deduct most, if not all, of her assisted living expenditure. This would reduce her taxable income (including the $32k from the IRA) to zero.
Under the proposed legislation she'd have an AGI of $69k (15% of her SS would not be treated as taxable income) and a Standard Deduction of $12k giving her taxable income of $57k. $45k would be taxed at 12% and $12k would be taxed at 25%. Her tax hit would be $8,400. Where is the money to pay her tax going to come from? Her IRA, of course. That means she'll have to pull roughly $42k/yr from the IRA to make up for the tax and still have $32k to pay for the assisted living. Basically, Grandma gets whacked with a $10k tax hit because of this change and, since she's already got everything in the IRA, she can't make a change to mitigate the beating she's going to take.
Keep this in mind too, in this example Grandma has $500k in the IRA. The result will be the same if she only has $150k in there. That makes a difference of being able to support 5 years of assisted living or just 3.5 years.
There is no way aging taxpayers who have the bulk of their savings in qualified plans can escape a trap like this.
I know that right now this is just a proposal but if this stuff goes through we're going to have a whole lot of very screwed people. But who knows, maybe they'll all be happy because it will be a tiny bit easier to do their taxes.
There are some great big, honking, ugly, nasty problems with this proposal.
The one problem I want to focus on here is one that, for some reason, hasn't been in the news. It's the elimination of the itemized deduction for medical expenses.
Look, I know that for a lot of people this is no big deal because they weren't getting much benefit from the deduction anyway but there is a class of person who will be absolutely hammered by this change. People in assisted living and nursing homes will be creamed.
Let's say that Grandma has Dementia and needs to be in an assisted living facility. The facility costs $6k/mo ($72k/yr). She has SS income of $20k/yr and a survivor's benefit from her husband's pension of $20k/yr. The rest of the money she has is in an IRA her husband left her and, because he was good about saving, there's $500k available. If she was at home she'd be able to live on the $40k without any problem but because the needs the assisted living she's now $32k short and that has to come out of the IRA.
Under current tax law she'd be able to deduct most, if not all, of her assisted living expenditure. This would reduce her taxable income (including the $32k from the IRA) to zero.
Under the proposed legislation she'd have an AGI of $69k (15% of her SS would not be treated as taxable income) and a Standard Deduction of $12k giving her taxable income of $57k. $45k would be taxed at 12% and $12k would be taxed at 25%. Her tax hit would be $8,400. Where is the money to pay her tax going to come from? Her IRA, of course. That means she'll have to pull roughly $42k/yr from the IRA to make up for the tax and still have $32k to pay for the assisted living. Basically, Grandma gets whacked with a $10k tax hit because of this change and, since she's already got everything in the IRA, she can't make a change to mitigate the beating she's going to take.
Keep this in mind too, in this example Grandma has $500k in the IRA. The result will be the same if she only has $150k in there. That makes a difference of being able to support 5 years of assisted living or just 3.5 years.
There is no way aging taxpayers who have the bulk of their savings in qualified plans can escape a trap like this.
I know that right now this is just a proposal but if this stuff goes through we're going to have a whole lot of very screwed people. But who knows, maybe they'll all be happy because it will be a tiny bit easier to do their taxes.
yes. Moreover, its interesting that the Republicans want to eliminate the PPACA and make everyone a free agent, but then add insult to injury by removing the tax deduction, which previously included the right to deduct health insurance premiums.
Hey, that's true but you're missing the big picture here. Paris Hilton types can now all afford a new condo in Aspen! That's what's really important about our tax system. Please think of the poor spoiled children of $millionaires and $billionaires!
I'm glad the GOP is thinking of the welfare of the trust fund baby crowd, and not worrying about parents adopting literal orphans, who lost their tax break for doing that. Seems like an easy choice:
1) More money for spoiled and already rich kids, OR
2) Tax breaks to parents adopting children
Obviously the GOP polled their sugar daddy contributors and chose door #1! Obvious choice!
Another non-popular piece of legislation brought to you by the Republicans. They are trying to sell this as middle class bill, but in essence, it just moves money around for the middle class (winners and losers). The average tax home pay for the lower 50% goes up by less than 1%, where as the average after tax benefit for the upper quartile is over 3%. Once again, an obvious sham.
https://www.nytimes.com/interactive...harts-to-explain-the-republican-tax-plan.html
Fortunately almost 2/3 of Americans see through this. But, does that matter? America really isn't much of a democracy as it seems that 30% is steering the country (though this can't last forever, it is problem now.)
https://www.reuters.com/article/us-...ump-tax-plan-reuters-ipsos-poll-idUSKBN1CT2TD
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