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Keep the Increase in Medical Expense Deduction Threshold

September 12, 2016 at 11:45 AM

Repealing the increase in the threshold for deducting medical expenses, as a pending House bill would do, would give a costly, unnecessary tax break to high-income taxpayers.

Taxpayers may claim an itemized income tax deduction for extraordinary medical expenses that exceed a certain threshold.  Health reform increased the threshold from 7.5 percent of adjusted gross income (AGI) to 10 percent starting in 2013 for most taxpayers.  For taxpayers age 65 and over, the higher threshold will take effect in 2017. 

The House will vote this week on a bill to repeal the increase.  This would be a bad idea for several reasons:

  • Repeal would largely benefit high-income taxpayers.  Higher-income taxpayers receive the greatest benefit from income tax deductions because they face the highest marginal tax rates.  If lawmakers reduce the threshold for the medical expense deduction to 7.5 percent of AGI, taxpayers with incomes over $100,000 would receive almost two-thirds of the tax cuts, according to Congress’s Joint Committee on Taxation.  Low-income seniors would reap little or no benefit, since most of their income comes from Social Security, which is largely untaxed.
  • Repeal would further undermine health reform’s revenue-raising provisions.  Congress has already delayed the medical device tax, the health insurance tax, and the excise tax on high-cost health plans (the so-called “Cadillac tax”).  Repealing the increase in the medical expense deduction threshold would encourage efforts to scale back still other revenue provisions of health reform. 
  • Repeal would cost almost $33 billion over ten years.  The bill doesn’t offset that cost and would therefore add to the deficit.  Even if policymakers enacted measures to offset the cost, the burden of the offset would likely fall on people who have lower incomes than those who would benefit from repeal.
  • Other changes have much higher priority.  For example, improving the Medicare Savings Programs, which help low-income beneficiaries pay their premiums and cost sharing, would be a far better way of protecting vulnerable seniors against high health care costs. 
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