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Older Americans fare well in budget deal

Seniors who make more than $400,000 a year will see tax increases, but most others will not. Plus, threatened cuts in Social Security and Medicare did not happen -- yet.

By MSN Money Partner Jan 7, 2013 12:19PM

This post is by Philip Moeller of U.S. News & World Report.

 

© Maria Teijeiro, OJO Images, Getty ImagesWashington's effort to avoid the fiscal cliff did not involve a grand deal that President Barack Obama had sought, but the American Taxpayer Relief Act, as it's called, certainly did involve a grand compromise. And maybe we can breathe easy for a while. But the new Congress will soon be greeted with renewed brinksmanship and squabbles as it wrestles with raising the federal debt ceiling and making spending cuts that were absent from the fiscal cliff fix.

 

In the meantime, older Americans have been spared any meaningful hits, unless they make more than $400,000 a year ($450,000 for couples). In that case, they will see big tax increases and also reductions in allowable tax deductions.

 

But, for the rest of us, the law hurriedly and reluctantly passed includes eight key features of special interest.

 

No Social Security cuts

 Lawmakers dropped a proposal to use a less-generous price index to determine the program's annual cost of living adjustment (COLA). This would have reduced future benefit increases by roughly 3% a year, adding up to an increasingly large benefit cut over time.

Meanwhile, the end of the temporary two-year reduction in an employee's share of payroll taxes (from 6.2% to 4.2% of covered payroll) removes a linkage between Social Security and broader government funding that program defenders are glad to see. They want Social Security to be treated independently of broader deficit discussions. The program, they note correctly, has never added a penny to federal spending deficits.

 

No Medicare sequestration cuts

 The automatic spending cuts set to occur will now be put off for two months. That's hardly more than a temporary and small Band-Aid, but it does spare seniors from a 2% cut in Medicare spending.

 

'Doc fix' extended a year

 Medicare payments to physicians participating in the program were set to drop by nearly 27% due to an existing law that tied their payments to rates of inflation. This provision is regularly extended by Congress, and this latest fix will cost a projected $10.6 billion this year.

 

Payment cuts to hospitals and other Medicare service providers will pay for the fix. They're none too pleased with that, but consumers are not likely to be directly affected. And those perennial threats by doctors to leave the program can be shelved . . . until the next time a fix is needed.

 

Low-income Medicare supports extended

 The Medicare Rights Center hails the new law's one-year extension of several Medicare assistance payments for lower-income seniors. Programs extended include help paying Medicare premiums (known as the qualifying individual program) and exceptions to payment caps for certain physical, occupational and speech therapies.

 

Funding for counseling and service help to disabled Medicare beneficiaries was also included, the Center said. "Given that less than one-half of those eligible for these benefits are enrolled," Center President Joe Baker says, "extension of this funding represents a critical step forward in building health and economic security for some of the most vulnerable beneficiaries."

 

Investment tax rates

 Tax rates on capital gains and dividend income remain unchanged for nearly all taxpayers -- 15% for most people and zero for taxpayers in the 10% and 15% income tax brackets. For taxpayers making more than $400,000 ($450,000 for couples), the rates rise to 20% on both capital gains and dividends.

 

Estate taxes

 Estates worth up to more than $5.2 million (double that for couples) will be permanently exempt from taxes under the new law, and the tax rate on amounts above that is 40%. These terms are much more generous than those supported by the White House and many Democrats. It is likely that neither party will want to revisit this contentious issue for a long time.

 

Roth IRAs

 The two-month sequestration delay carries a $30 billion price tag. To help pay about 40% of it (over 10 years, not two months), the new law expands the ability of people with tax-deferred retirement investment accounts to convert them into Roth individual retirement accounts if their employer offers such accounts. Roths are funded with dollars that have already been taxed but future investment earnings are exempt from income taxes.

 

The $12 billion in extra revenue expected from the provision comes from the taxation of funds expected to be moved from tax-exempt accounts into Roths. The text of the law says an employee may "transfer any amount not otherwise distributable under the plan," indicating there are no income or other limits reducing the amount of funds that can be transferred to a Roth.

 

Long-term care

 One of the biggest flops of health reform was its long-term care insurance program, known as the Community Living Assistance Services and Supports (CLASS) Act. It would have created a long-term care insurance program for employees, but healthier people were deemed unlikely to enroll in the program because it was made voluntary. If only sicker people signed up, there was no way to operate the program without incurring unacceptable deficits.

 

The new law formally ends the CLASS program. However, it does set up a new study commission to develop a national plan for providing long-term care to the nation's growing numbers of seniors. Such a plan has long been called for by experts on aging, who note that the United States lags far behind other developed economies in planning for its aging population.

 

More from U.S. News & World Report and MSN Money:

 

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25Comments
Jan 8, 2013 2:03AM
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Sooner or later, preferrably sooner, we all have to come to the same conclusion, some things are going to have to change. Some things are just costing too much to continue and others are neccesary. One, the cost of medical attetion in this country has gone past out-of-sight and entered the rediculous.This may or may be part-and-parcel to do with the cost of insurance and malpractice coverages determined by insurance companies. Insurance companies, who have been making a fortune on the backs of everyone continue their finacial hold on every factor of our lives. Second, drug companies have increased the cost of medication for years with no let up in sight, even though these same companies recieve huge subsiies from the government in the form of tax credits for research and development, to the tune of  hundreds of millions of taxpayor dollars every year. Third, the shear volume of frivalous tort suits and the added expense of legal counsil exasperate the problem . Don't think we don't need insurance companies, drug companies, and legal representation because we do, but when these same companies and professional take advantage of the system and cause financial chaos ,there needs to be recourse and the ability to recover what has been,for another word, stolen.
Jan 8, 2013 10:21AM
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All that's happened is the train wreck has been pushed down the  tracks a little. Unless congress stops spending wastefully, the problem will continue. Congress can't tax enough to pay for what they spend.
Jan 8, 2013 10:06AM
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From the article: "They want Social Security to be treated independently of broader deficit discussions. The program, they note correctly, has never added a penny to federal spending deficits"

 

...Amen.

Jan 8, 2013 1:51PM
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One article says that seniors are no better off and another says that congress cannot or will not pay back the money they borrowed, i.e.  The Social Security Trust Funds. Congress was finally able to come to some agreement.  Otherwise, their automatic raises could have been in jeopardy.  At least congress will be able to pay more towards the deficit they created.  
Jan 8, 2013 3:57PM
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THE PROBLEM WITH GOVT IS THERE IS NO BUSINESS MAN IN CHARGE.THE SOLUTION TO OUR PROBLEM IS NOT COMPLICATED. STEP ONE HAVE NO CAP ON FICA IF SOMEONE MAKES 10 BILLION THEY STILL PAY FICA. THIS WILL PROVIDE MUCH MORE MONEY TO FUND SOCIAL SECURITY.STEP 2 FREEZE FEDERAL SPENDING TO 2012 LEVELS.STEP 3 NO FEDERAL TAX ON ANY HOUSEHOLD THAT BRINGS IN LESS THAN 35 THOUSAND DOLLARS AND INDEX THAT TO INFLATION.STEP 4 INCREASE IRA CONTRIBUTIONS TO 25% OF IN COME WITH NO INCOME CAP.STEP 5 LOWER ALL BUSINESS INCOME TAX TO 10% STEP5  ALL ISSUES AND VOTING BY ANYONE IN CONGRESS SHOULD BE VISABLE TO ALL CITIZENS.CITIZENS SHOULD BE ABLES TO CAST THEIR VOTE ON ISSUES BEFORE CONGESS DOES.NOW CONGESS WILL KNOW WHAT THE AMERICAN PEOPLE WANT.STEP 6 IF OBOVE IS NOT DONE LEAVE THE COUNTRY. DR JOE

                                                                                                                                                            

Jan 8, 2013 12:59PM
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no tax increases?????

 

How about the negative $2K hit ot my salary from the SS increase...That's a tax

Jan 8, 2013 6:15PM
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Can we at sometime get  money out of the older generations that let this mess happen in the first place?  Talk amongst yourselves. Memories...
Jan 8, 2013 7:27AM
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Pretty neat, huh? People no longer in the economic mainstream who take from it, whine about taxes, have assault weapons, gold and mature families that don't need their support-- are RICH and will be getting RICHER. Meanwhile, families across America already noticed the 2% HIT to their net pay. It absolutely stands to reason that we cannot sustain this. As for the Me Generation- go visit the Grand Canyon and jump... you are the most useless people ever in history.
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