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Under New Tax Plan, the Cost of Aging Could Rise

Kae and Reggie Yates in Pomona, Calif. She had to spend over $75,000 this year for his care after he suffered a stroke. Credit Brad Torchia for The New York Times

In the coming days, a small group of Republicans will meet in Washington to try to settle a simple question: Should their revised tax bill eliminate a deduction for medical expenses and take away thousands of dollars each year from many people who are sick and, often, old?

The two competing tax bills that will form the basis of an attempt at compromise over the coming weeks, one from the House of Representatives and one from the Senate, answer the question differently. The Senate bill would keep a deduction for medical expenses intact. The House bill would kill it off entirely. The more money that people had to spend this year, the more they would lose next year if the House prevails and the deduction disappears.

Let’s meet those people.

Meet Medha Godbole, 58, whose 60-year-old husband, Sanjay, is paraplegic, nonverbal and incontinent. The Solon, Ohio, couple have about $130,000 in expenses for Mr. Godbole’s round-the-clock, in-home care. Loss of the tax break would cost them close to $30,000 annually.

Meet Conrad Wagner, 88, who spent his working years at the Veterans Administration and then teaching at Vanderbilt University. He expects to spend about $200,000 this year on care and expensive equipment for his 87-year-old wife, Jane, who has a stomach condition that requires 24/7 help in their Nashville home.

Meet Kae Yates, who had to spend over $75,000 this year. Her husband, Reggie, is 77 and lives in an assisted living home in the wake of a stroke. She’s 72 and still has all the usual expenses for her own home and daily life in Claremont, Calif.

How many more are out there like them? The AARP Public Policy Institute, relying on the latest Internal Revenue Service data from 2015, notes that 8.8 million people take the medical expense deduction each year. Not all of them are older. Many children with special needs, for instance, have so many expenses that their parents end up qualifying for the deduction.

Ditto sick or disabled adults with all sorts of maladies.

Still, about 55 percent of the taxpayers who claimed the deduction in 2015 were 65 and older, according to AARP. Also, 69 percent have incomes under $75,000.

The average amount that people claimed was $9,904, which makes the couples we’ve met up above outliers. But it stands to reason that people who need long-term care will spend some of the highest amounts, given the high cost of nursing homes and similar care. And because 52 percent of people who live beyond 65 will need some kind of extended care before they die, according to federal health data, these outsize expenses are the ones that we ought to focus on when considering which tax breaks we want to persist.

In an ideal world, any big new tax bill makes things simpler. Cutting deductions for medical expenses does make the year-end chore easier. But is it fair?

Imagine two couples, both alike in incomes, in a state without income tax where we lay our scenario. They have $150,000 in income and $100,000 in medical expenses and take no other itemized deductions.

Now imagine that one gets a deduction for medical expenses and one does not. Using the 2017 tax brackets and a rule that would not allow medical deductions unless they exceed 10 percent of adjusted gross income, a couple that could access the deduction would end up with $15,547 more at the end of tax season than one that could not deduct and thus paid more in taxes, according to calculations that Ruth A. Sattig Betz, an accountant in Farmingdale, N.Y., ran for me.

Take the income down to $75,000 (where the extra $25,000 for the medical costs to pay the $100,000 in bills would come from sources or savings that are not subject to income tax) and the household with the ability to take the deduction would end the year with $6,826 more.

So the medical expenses clearly matter, a lot. “Two households may have identical incomes, but they do not at all have identical capacity to pay taxes,” said Cristina Martin Firvida, AARP’s director of financial security. “And it’s not because of a choice that one of them made.”

Indeed, to critical observers, it looks like Republican leaders in Congress are using the tax code to punish states with high income taxes. They use the bill to accomplish this by limiting how much of those state income taxes are deductible. That effectively penalizes some of those residents, who did choose to live in those states, with a higher total tax bill.

Similarly, the proposal to lower the size of a mortgage that is eligible for interest deductions is akin to removing a subsidy for people who choose to buy bigger homes or live in more expensive areas.

Nobody chooses to be sick though, which makes the House’s move to strip out the medical expense deduction feel harsh to people who really, truly wish they had not qualified for it in the first place.

“This is completely out of our hands,” said Dr. Godbole, who is a pathologist. “It’s not like sending kids to private school,” she added, in a pointed reference to a new tax break that lawmakers hope to add for parents who do just that and could end up being able to do so with money they save in 529 plans, which are currently only for higher education.

Moreover, eliminating a deduction probably shouldn’t cause a chain reaction that will cost the federal government money. After all, the quicker that sick, older people run out of money because of higher tax bills, the sooner they will need Medicaid to pay for their long-term care. And who helps pay for Medicaid? The very same federal government that would no longer permit people to deduct high medical expenses.

If the changes comes to pass, Ms. Yates in California figures she and her husband could run out of savings in about five years. I contacted the House Ways and Means Committee to see what its chairman, Kevin Brady, Republican of Texas, thought about the specific impact of the House’s proposal on elderly people with high expenses. “Chairman Brady is committed to addressing this issue at the conference committee,” said Lauren Blair Aronson, the committee’s press secretary.

Dr. Godbole, who is still working, can make her household’s money last longer than the Yates’s savings. But her husband might live for decades, owing to his excellent heart, she said, and their money probably would not last that long.

She seeks no pity, she said. She knows many people in the stroke support club they belong to who will be in big financial trouble much sooner if the deduction disappears. But she sees the stories about Congress wanting to cut entitlement programs once they finish yanking the medical deduction, and worries. “It will be a double whammy for us,” she said.

Professor Wagner said that he understands the zeal to simplify the tax code. He expressed no particular ill will for his elected representatives, though he has written them to outline his situation and concerns.

Having worked until just a few years ago, he had hoped for financial certainty and the emotional peace it would have provided, even if he and his wife knew they could not predict their future health. But now, he said, he finds himself constantly checking the news for word on the tax plan’s progress.

“I worked that long in order to enable myself to prepare for and expect a comfortable retirement,” he said. “And it’s certainly not comfortable now.”





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