What NC can teach Congress about taxes and medical costs

November 09, 2017

The tax bill released by House Republicans last week would eliminate a tax deduction used by 8.8 million Americans who have particularly high health bills.  The deduction provides relief to tax payers who have medical expenses in excess of 10% of their gross adjusted income.  In other words, these are people who already are paying very high medical bills.  

The intent is for this to be offset by an increased standard deduction. But for those with very high medical bills, it might not work out that way.

Perhaps this is an opportunity for the U.S. House to learn from North Carolina.  Back in 2013, the North Carolina General Assembly passed a tax overhaul that eliminated a similar deduction. It was signed by then governor Pat McCrory and went into effect in 2014.    

The deduction in North Carolina allowed medical expenses exceeding 7.5% of income to be deducted from state income taxes.  Like the proposed House bill, this was meant to be offset by an increase in the standard deduction.

In North Carolina, it didn’t work out as intended. Back in 2015, Mary Bethel of the AARP told WRAL:

“I’ve had calls from people whose tax liability is going up 40 to 60 percent when their gross adjusted income for federal is going up 1 percent,” she said. “The problem is, you’ve got a lot of people on fixed incomes, so they have no additional revenue to make up for it.”

And sure enough, later that year, the deduction was restored.

The Senate version of the bill, released today, keeps the deduction intact.

As the GOP continues to refine their tax reform bill, perhaps they should take some time to learn from the mistakes of the past.  Healthcare expenses are high enough already.  This deduction offers a bit of relief, let’s not take it away.  

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