Urgent Care by Minda Wilson: November 2017

The House of Representatives’ recently passed tax reform plan takes us another step closer to sending the middle class over the cliff’s edge and into the abyss.

It is the double whammy, increased taxes plus increased health insurance costs, Though touted as the largest tax cut in history, the reality is that middle-class Americans will see almost no benefit from the bill.

First, by reducing the number of brackets, many will see their personal tax rates increase.

In terms of healthcare, we are looking at 25% increases in healthcare costs for 2018. In 2019, we can expect even greater increases. Repealing the individual mandate means that people will not be punished for not obtaining health insurance. If you run the numbers, for a family of 4, you will find that unless you are spending more than $30,000 per year on healthcare for your family, you are probably better off without it. When calculating whether or not you can afford it, in addition to the direct costs of insurance and out of pocket expenses, you must also consider the cost of caretaking. If an adult is sick, you must consider the loss of income and the time off work to take care of him or her. If a child is sick, you must also consider the full-time cost of care at home, the cost of transportation for not just your child but for you as well. If managing these costs won’t bankrupt you and reduce your income to the poverty level, then you should consider getting insurance. Once you reach the poverty level, you are eligible for Medicaid and healthcare for you and your family is free.

If you decide you can afford it, whether or not you choose to buy insurance becomes a decision about hedging risk. Health insurance is supposed to be a protection against downside risk. Simply put, if you have health insurance, it should protect you from losing everything if someone in your family suffers a catastrophic illness. Catastrophic means an illness that is either prolonged or very expensive to treat.
As the middle-class moves closer and closer to the poverty line, this means more and more people will not buy insurance but choose to pay as they go; waiting until, when things get bad enough, they cross the poverty line and get free coverage. It is estimated that 13MM Americans will forego health insurance in the next year.

It’s a vicious cycle, but with fewer people purchasing insurance, and even less young and healthy people in the mix, premiums in future, deductibles in future and, co-pays will rise. For those who work for corporations who pay these costs, they will be asked to absorb more of the business’ health insurance costs.

If the Republicans really wanted to repeal Obamacare they could use the courts to do it. The only argument the Supreme Court bought for the constitutionality of the ACA was that the ACA, by virtue of the individual mandate, was a tax; a tax on people who did not obtain healthcare. By repealing the individual mandate, Congress would be repealing the basis the court used the find the Affordable Care Act constitutional. No mandate, no tax. Once repealed, the Republicans can ask the Supreme Court to determine whether or not the ACA is constitutional. If they get the likely answer, NO!, whatever remained of the legislation would be repealed.

But it's not just healthcare that the bill impacts, middle-class people should expect to pay more in taxes.

For the rich, the estate tax will be eliminated after six years. In the meantime, the exemption for inherited wealth, the amount that is exempt from the taxation, has been raised to $11 million from $5.5 million. Preferential treatment for investment income remains the same. People who live primarily on investments, not pensions or other income, or who live on inherited wealth will benefit. Otherwise, you are out of luck.

To help pay for the tax cuts, the plan would eliminate most personal deductions, with the exception of deductions for mortgage interest, charitable contributions and state and local property taxes. The mortgage interest deduction would be capped for newly purchased homes up to $500,000, and the property tax deduction would be capped at $10,000. According to Bankrate, median existing single-family home values are moving higher, averaging approximately $270,000 across the United States. This means that people who already live in higher cost of living states would lose those deductions. For example, if you live in the Bay Area, including Oakland, you are out of luck. No deductions for you.

The biggest deduction that would be eliminated is the one for state and local taxes. That deduction primarily helps people in blue states where taxes are higher. That coupled with the elimination of the Alternative Minimum Tax, which affects working people who earn $75,000 or more, means that their taxes would go up.

Small business entrepreneurs will be hit especially hard. Not only will they lose their personal deductions, but the pass-through sole proprietorships, LLC’s, S-Corps, and/or partnerships they set up to protect them will now be subject to taxation. There will be an additional 25% entity tax rate imposed. Most pass-throughs that are owned by individual currently pay less than 25% of their income in taxes.

The bottom line is if you are a working person, own a small business or are self-employed, your healthcare costs and your taxes are likely to go up.