Oppose Tax Legislation: Contact Legislators Now

Legislation | December 13, 2017 | by Barbara Gay

Members of the House and Senate still have not finalized provisions of H.R. 1, titled the Tax Cuts and Jobs Act. We still have time to advocate against passage of this legislation, which has the potential for devasting the not-for-profit aging services community. 

Take action against H.R. 1 now.

The two bills passed by the House and Senate had differing provisions, which remain to be resolved by a House-Senate conference committee. Both houses then will have to vote on the final draft. 

There is still time for us to defeat this legislation, which poses an enormous threat to Social Security, Medicare, Medicaid, senior housing, home- and community-based services programs, and those who depend on them. 

Specific provisions of the legislation, as discussed below, would be problematic. Our overarching concern, however, is about the impact the bill as a whole will have on the federal budget and on the future availability of essential resources for Medicare, Medicaid, senior housing and home- and community-based services.

The nonpartisan Joint Committee on Taxation projects a $1.5 trillion increase in the federal budget deficit resulting from H.R. 1 over the next decade. The budget deficit for fiscal 2018 already stands at $440 billion. And the $1.5 trillion figure likely underestimates the future budget trough, since it presumes that Congress will allow tax cuts to sunset after 2026.

With a massive revenue loss widening an already large budget gap, it is completely foreseeable that enactment of H.R. 1 would lead to calls for huge cutbacks in federal spending on programs serving elders. We have already seen budget proposals calling for hundreds of billions of dollars in Medicare and Medicaid cuts. And resources for housing and home- and community-based services programs, already inadequate to meet existing needs, likely would fall even farther behind, if these programs even were to survive.

Aging services providers must focus on the future, planning for our potential residents’ and clients’ long-term services and supports needs in coming decades. We urge individuals to do this kind of planning for themselves; we also have a responsibility to see that groundwork is laid and resources are available to meet future long-term services and supports needs on a population-wide basis. The tax legislation now before Congress would hamstring our members’ ability to continue providing essential housing and long-term services and supports to future generations of elders.

Although the bill as passed by the House of Representatives on November 16 differs in some provisions from the Senate measure, both versions of the legislation contain specific provisions that are problematic for our field and also would enormously expand the federal budget deficit. The following provisions of the legislation cause us particular concern:

Medical expense deduction

The House-passed legislation would eliminate the present individual tax deduction for medical expenses. While the bill increases the standard deduction, people aged 65 and over who have high out-of-pocket medical expenses relative to their incomes still could end up paying higher taxes. Residents of life plan communities who now can deduct a portion of their entry and/or monthly fees as advance payment of medical expenses would lose this deduction. The Senate version of the legislation retains the medical expense deduction.

Private Activity Tax Exempt Bonds

The House bill as passed eliminates private activity tax exempt bonds.  This is a major source of funding for development of life plan communities by our members as well as a critical source of funding for low-income senior housing (as well as hospitals and colleges/universities).  Unlike the for-profit sector which has access to a variety of sources of capital, including equity, LeadingAge members are largely reliant on tax-exempt bond financing.  It is estimated that eliminating this tax exemption would raise the cost of capital to LeadingAge members by 25-35%, significantly impairing the development of new communities at a time when demand is growing and will continue to grow as the baby boomer generation ages.  Any increase in the cost of financing ultimately will be borne as higher costs to the senior consumer. The Senate bill preserves tax-exempt status for private activity bonds.

Low-income housing tax credit

The elimination of the tax exemption for private activity bonds under the House tax measure would effectively end the 4% low-income housing tax credit program. Using multifamily housing bonds, a type of private activity bond, is the only way to trigger the availability of 4% low-income housing tax credits. Eliminating one ends the other. Nationally, more than 50% of all low-income housing tax credit transactions were done through the 4% credit (the remaining transactions were done through the 9% credit) in 2016. More and more, states are relying on 4% low-income housing tax credits to produce and preserve affordable housing. There are no provisions in either the House or Senate bill to adjust the 4% credit so that it could be used without private activity bonds.

Advance Refunding

Both the House and the Senate bills eliminate what is called "advance refunding".  This occurs when a borrower seeks to refinance the bonds at a lower interest rate during the “call protected period” (typically 10 years), meaning the holder of the bonds can’t call and demand payment. Existing tax law allows one of these refinancings in the life of a bond.

It is very common for LeadingAge members to use advance refunding, typically in two scenarios.  A member might obtain financing in a higher interest rate market and when rates drop, advance refunding would lower their capital costs.  And a start-up typically has a higher interest rate because of the risk associated with a new campus, but after they stabilize the risk goes down so they are able use advance refunding to lower their rate and costs.

In both scenarios, advance refunding ultimately saves the senior consumer money since the payments they make include the cost of capital. The elimination of this provision, therefore, would lead to higher costs for the consumer.

Deduction for state and local taxes

The House-passed tax measure would eliminate the current deduction for state and local taxes, with an exception for up to $10,000 in local property taxes. The Senate bill would completely eliminate the deduction.

Eliminating or reducing the deduction for state and local taxes will make it harder for states to increase taxes to make up for any cutbacks in federal funding for Medicaid and other aging services programs. In addition, the loss of this deduction could put pressure on state legislatures and communities to cut taxes. Since Medicaid is the largest item in most state budgets and most, if not all states have balanced budget requirements, this tax provision poses a long-term, double-barrelled threat to Medicaid funding. Local efforts to cut property tax rates also could intensify efforts to subject not-for-profit organizations to property taxes.

Conclusion

We continue to urge members of Congress to reject H.R. 1. The bill would increase taxes on many elders, threatens our members’ ability to develop new housing properties and would inevitably lead to substantial cuts in Medicare, Medicaid and other essential programs that serve elders. Tell your legislators you oppose H.R. 1 today.