House Tax Reform Plan Poses Risks to Health, Nonprofits
Last week, House Republicans unveiled a sweeping tax reform bill (H.R. 1), amounting to a massive tax cut for certain individuals and corporations. While the bill does not cut Medicaid, it would add $1.5 trillion to the federal deficit, which could threaten future health care spending as available federal dollars shrink. The bill also contains provisions that could lessen the charitable donations nonprofits receive and eliminate the medical expense deduction.
Early on health care advocates feared that a tax reform package would be combined with earlier Congressional proposals to restructure Medicaid and repeal and replace the Affordable Care Act (ACA). Notably, the current bill is solely focused on tax policy and does not contain any harmful cuts to Medicaid or the ACA. If passed, the bill could put pressure on Congress to make cuts to health care spending down the road due to an increase in the federal deficit.
House conservatives continue to push to add a repeal of the ACA’s individual mandate into the tax reform effort. According to the recent analysis by the Congressional Budget Office, axing the individual mandate would reduce federal spending by $338 billion over 10 years and 13 million fewer people would have health insurance in 2027. Yet GOP leaders, including House Ways & Means Committee Chairman Kevin Brady, are wary of adding any ACA repeal measures to the bill as it could sink the bill’s chances of passing in the Senate.
Private dollars are an essential source of flexible funding for many mental health and addiction treatment providers. Unfortunately, the House tax plan could hurt the bottom line of these nonprofit organizations by increasing the standard deduction—thus decreasing the incentive for individuals to itemize deductions such as their charitable contributions. The House bill would double of the standard deduction, which is the dollar amount that lowers the income on which Americans are taxed. Tax experts agree that if more money is available under the standard deduction, taxpayers will be less motivated to save money by making charitable donations.
Additionally, doubling the standard deduction will shifts millions of taxpayers who currently itemize their deduction to taking the standard deduction instead. Consequently, as many 30 million taxpayers who itemized in 2016 will no longer have the charitable giving incentive available to them and will be taxed on their gifts. According to the Coalition on Charitable Giving, the result of this provision alone could be a staggering loss of up to $13.1 billion in contributions annually.
The medical expense deduction would be eliminated under the House’s plan. This deduction is used by 8.8 million Americans to help offset the costs of acute and chronic health conditions. This change would affect people living with mental illness and addiction, especially those that are disabled and/or need long-term care services.
Looking ahead, the Senate is expected to release its version of a tax reform bill this week. House leaders hope to pass their measure on the House floor before Thanksgiving.