House GOP proposes raising Medicare age to 67

[scrabbler1]

I wish they would not make the lower rates for the rest of us permanent. If they instead puts ours on a gradual slope restoring them to the 2000 levels in 4-8 years it would help whack the deficit. No way we will see spending cuts sufficient to get the job done. They should also get rid of the debt ceiling process. No way Congress critters should be able to make a deal on taxes and spending and then threaten default 6 months later to get what they agreed to forgo.

I agree. Let them all (tax rates) expire but phase them out over a few years, maybe a point or two a year. The 2003 tax cuts on dividends and cap gains had bigger and somewhat variable rate reductions so it could not be as gradual.

 

[pb4uski]

.....As a married homeowner (and new father), I am getting an incredibly sweet deal tax-wise. We pay lower tax rates than many people I know that make half as much. That doesn't make sense to me.

I don't get that - can you explain what you are talking about? Since tax rates vary with income if you make twice as much as someone else your tax rate should be higher.

Not exactly--Tax rates vary by the filer's taxable income. It's entirely possible for a single taxpayer taking the standard deduction to pay a higher marginal tax rate than a married couple with a child and a lot of mortgage interest plus other deductions who are earning twice as much. And that's before we get into cap gains and dividend income treatment. ....

Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.

 

[ziggy29]

On one hand it would seem to make sense to link the SS and Medicare eligibility ages. On the other hand, it's possible to be able to retire without SS if you didn't have to buy private health insurance, and if you make it even harder to retire until you're 67, I hope these people have a workable plan to make it easier to keep your job (or get hired at all) until you're 67.

I guess my concern is that age discrimination is already bad enough, and unemployment high enough, that all this will do is increase the dependence of 65-66 year olds on unemployment, food stamps and Medicaid instead of SS and/or Medicare. And *poof*, there goes a decent chunk of the cost savings...

 

[Hamlet]

The problem with raising the Medicare age is that it really doesn't save much money. All things being equal, the younger someone is, the cheaper it is to provide them health care. Raising the retirement age just removes younger, cheaper seniors from the rolls.

In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.

I would be okay with raising the Medicare age to 67 IF there was a method for an early buy-in the same way someone can begin taking SS at an age less than the FRA and agree to a reduction in benefits. Medicare would then be slightly costlier for someone who chooses to begin receiving benefits at, say, 65 (or less, perhaps down to 62, the minimum age to begin claiming SS benefits).

Not sure how this would interact with the PPACA whose exchanges would enable someone to buy HI although there are pretty high multipliers by age. There might be some adverse selection issues with those who do an early buy-in.

 

[Hamlet]

Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.

Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.

 

[NW-Bound]

In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.

+1

 

[pb4uski]

On one hand it would seem to make sense to link the SS and Medicare eligibility ages. On the other hand, it's possible to be able to retire without SS if you didn't have to buy private health insurance, and if you make it even harder to retire until you're 67, I hope these people have a workable plan to make it easier to keep your job (or get hired at all) until you're 67.

I guess my concern is that age discrimination is already bad enough, and unemployment high enough, that all this will do is increase the dependence of 65-66 year olds on unemployment, food stamps and Medicaid instead of SS and/or Medicare. And *poof*, there goes a decent chunk of the cost savings...

Isn't your concern a bit moot beginning in 2014 if Obamacare health insurance subsidies start? The person who would be able to retire without SS would likely be at an income level that they would get a pretty good subsidy.

 

[scrabbler1]

The problem with raising the Medicare age is that it really doesn't save much money. All things being equal, the younger someone is, the cheaper it is to provide them health care. Raising the retirement age just removes younger, cheaper seniors from the rolls.

In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.

The money Medicare would save by raising its age is from the less healthy seniors in the 65-67 age range, the ones who would have the most trouble finding affordable insurance elsewhere and need Medicare the most. The younger, healthier seniors may or may not be enrolling in Medicare but the younger, less healthy seniors will surely be enrolling in it. This is the anti-selection bias I referred to in my other post. Raising the premium for an early buy-in would address this anti-selection bias.

I do agree with your second point (about costs).

 

[ziggy29]

Isn't your concern a bit moot beginning in 2014 if Obamacare health insurance subsidies start? The person who would be able to retire without SS would likely be at an income level that they would get a pretty good subsidy.

It becomes "mooter" but not entirely a non-factor. Yeah, they probably wouldn't be paying the full freight (and if they did, they probably had an income level which would have allowed them to save adequately for earlier retirement), but we really don't know yet what the difference would be for (say) a retired 65-year-old couple with $40-50K in income between buying insurance on an exchange (net of subsidy) and being on Medicare in terms of premiums, copays and deductibles.

 

[pb4uski]

Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.

I understand now, but I suspect that a young couple saving the way you do is unusual, and your single friend would be in a lower tax bracket if he saved as much as you do (as a percent of his income).

I would actually like to see them get rid of all deductions other than those for retirement/HSA savings that encourage people to become self sufficient and not be a burden on society.

While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.

 

[ziggy29]

While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.

I would claim that the main thing the mortgage interest deduction has done is inflate the cost of housing. Let's face it, most people determine housing "affordability" by the effective monthly payment, not the purchase price. The mortgage interest deduction simply reduces the effective monthly payment, allowing the buyers to chase higher and higher purchase prices.

 

[pb4uski]

It becomes "mooter" but not entirely a non-factor. Yeah, they probably wouldn't be paying the full freight (and if they did, they probably had an income level which would have allowed them to save adequately for earlier retirement), but we really don't know yet what the difference would be for (say) a retired 65-year-old couple with $40-50K in income between buying insurance on an exchange (net of subsidy) and being on Medicare in terms of premiums, copays and deductibles.

The Berkeley calculator suggests that a 65 yo couple with $50k of income would have a net cost of $396/month and a maximum annual out-of-pocket of $8,067, so I think it would be more expensive than Medicare but not out of reach.

 

[scrabbler1]

Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.

I prepare my ladyfriend's tax returns, so I noticed when I did her 2010 taxes that her income (taxable and AGI, our itemized deductions were pretty close, too) was about the same as mine that year. We were both at the top end of the 15% bracket.

But her income was all wages while mine was a mixture of dividends and cap gains, much of it taxable and some of it not. Even though my TI was a few thousand dollars higher than hers, my taxes due were several hundred dollars less than hers, mainly due to about $7,000 of dividends and LTCG in the 0% bracket. And if you recall in 2010, the Making Work Pay tax credit was applied as a partial tax payment, not a reduction in taxes due. Even if it had been applied as a tax credit, her taxes due still would have been a few hundred dollars higher than mine.

All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.

 

[ziggy29]

All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.

To use another example I've used here in the past, it also rewards the married over the single. I always knew that but I didn't realize how much until a few years ago. My dad passed away in 2005 and I did my mom's tax returns for 2005 (and ever since). In 2006 she had to file single, and though her income dropped by about $9K (the loss of her own SS benefit), her federal income tax roughly doubled. Part of this was the shifting of the bracket (from the 15% into the 25%), and part was having 85% of SS income taxable instead of 50% as in 2005.

Talk about a punitive "death tax"...

 

[pb4uski]

...All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.

While what you say is true, I think you need to think beyond you and your friend to see the whole picture. The dividends you have are the result of corporate income being distributed and corporate income retained is reflected in the value of the company to an extent that is part of your LTCG. Since both represent after-tax corporate income, each has already been taxed once. While the statutory corporate rate is 35%, many corps don't pay that, but 20-30% is not uncommon.

 

[Texas Proud]

The money Medicare would save by raising its age is from the less healthy seniors in the 65-67 age range, the ones who would have the most trouble finding affordable insurance elsewhere and need Medicare the most. The younger, healthier seniors may or may not be enrolling in Medicare but the younger, less healthy seniors will surely be enrolling in it. This is the anti-selection bias I referred to in my other post. Raising the premium for an early buy-in would address this anti-selection bias.

I do agree with your second point (about costs).

Just as an FYI, almost all seniors sign up for Medicare when they become eligible... if not, they have permanent premium increases.... so even the healthier ones actually do sign up....

 

[ziggy29]

Just as an FYI, almost all seniors sign up for Medicare when they become eligible... if not, they have permanent premium increases.... so even the healthier ones actually do sign up....

The only ones who don't, for the most part, are the increasingly rare few who have lifetime "Cadillac" retiree health care benefits from their employer. This is less and less prevalent, though. Virtually all employers today who still offer retiree health insurance drop their retirees onto Medicare as soon as they hit 65.

 

[FUEGO]

Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.

Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

Deductions we get:
$51000 off the top for 2 401ks and a 457 plan.
$4200 government pension contribution
$10,000 traditional IRA contribs
5 exemptions (2 adults, 3 kids)
Married std deduction
$5000 Childcare FSA
$6450 HSA (next year; we did FSA this year)
$3000 capital loss deduction against ordinary income
$1000 student loan interest
$480 family Health insurance comes out pre-tax
$700 family dental insurance comes out pre-tax

Then on top of it all we get $3000 in child tax credits (3 kids).

For 2013 we will probably get a sizeable refund from the Fed taxes (ie we will have a negative tax rate).

We don't even itemize deductions in most years as we are just below the standard deduction even if we lump 2 years real estate property tax into 1 year. Our mortgage is almost paid off and only 1.99% interest anyway, so it is a tiny bit of interest annually.

Crazy federal tax policy and I laugh all the way to the bank every year. I used to think it is unfair, but now I'm more "git mine while the gittin's good, cause they will git me one day".

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)

 

[frayne]

Getting a bit off topic here but the federal tax code is so convoluted, unfair and biased against single people who make decent money and have no deductions as well as married couples with decent income and no deductions. You are basically penalized for not having kids and not having any debt, just doesn't hardly seem right.

 

[Hamlet]

I don't think our savings is all that unusual at our income level (over 150k gross). It would be very unusual at my friend's income level (75k).

The 401k deduction brings the most benefit to the upper middle class. The lower income groups have a hard time saving a large amount of money, and regardless of what they save, the tax savings they get is smaller because the tax rate they avoid paying is lower. For the higher income groups, the absolute amount of the deduction is less significant.

Another little quirk of our tax code is how much it can benefit a married couple compared to two singles living together. When a low income person marries a higher income person, it basically allows them to use double the deductions, since many of the low income person's deductions weren't useful to that person alone, but are very useful for reducing the combined couple's taxable income.

I understand now, but I suspect that a young couple saving the way you do is unusual, and your single friend would be in a lower tax bracket if he saved as much as you do (as a percent of his income).

I would actually like to see them get rid of all deductions other than those for retirement/HSA savings that encourage people to become self sufficient and not be a burden on society.

While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.

 

[Hamlet]

The obvious question I have to ask--

What the heck do you live on?

Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

Deductions we get:
$51000 off the top for 2 401ks and a 457 plan.
$4200 government pension contribution
$10,000 traditional IRA contribs
5 exemptions (2 adults, 3 kids)
Married std deduction
$5000 Childcare FSA
$6450 HSA (next year; we did FSA this year)
$3000 capital loss deduction against ordinary income
$1000 student loan interest
$480 family Health insurance comes out pre-tax
$700 family dental insurance comes out pre-tax

Then on top of it all we get $3000 in child tax credits (3 kids).

For 2013 we will probably get a sizeable refund from the Fed taxes (ie we will have a negative tax rate).

We don't even itemize deductions in most years as we are just below the standard deduction even if we lump 2 years real estate property tax into 1 year. Our mortgage is almost paid off and only 1.99% interest anyway, so it is a tiny bit of interest annually.

Crazy federal tax policy and I laugh all the way to the bank every year. I used to think it is unfair, but now I'm more "git mine while the gittin's good, cause they will git me one day".

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)

 

[ziggy29]

Here's another married guy with kids saying I pay basically zero federal tax on a decent six figure income. Well, I may pay $300 or so this year if I don't feel like optimizing taxes too much.

...

(edited to add: I just added up all the deductions and there is more than $110,000 in deductions from our gross income.)

I can't fault anyone for taking full advantage of any and all *legal* methods to defer and/or avoid (not evade) taxes, but yeah, this is an example of how screwed up and inequitable the tax code can be.

 

[FUEGO]

The obvious question I have to ask--

What the heck do you live on?

Kegs of Whoop-A$s and willpower

Very little actually. I don't think we spend more than 15-20% of our gross income. I track it pretty closely, and our core expenses* run about $20-25k/year.

Much of our spending is from tax-free income (child care, health/dental, student loan interest).

*excluding the mortgage payments which I equate to moving money from one pot to another

 

[NW-Bound]

Even though we have children, I used to think that tax subsidy for raising children was wrong.

Now that my children are grown, and I can claim no benefits from it, I reflected on this subject and thought that there might be some merits in it. Seeing that so many people prefer to be child-free, I wonder who will be the workers to support our generation when we are getting old. Heck, many people here, myself included, already stopped working. Some European countries have even more generous benefits to encourage people to have children, due to their low birth rates.

 

[ziggy29]

Now that my children are grown, and I can claim no benefits from it, I reflected on this subject and thought that there might be some merits in it. Seeing that so many people prefer to be child-free, I wonder who will be the workers to support our generation when we are getting old. Heck, many people here, myself included, already stopped working. Some European countries have even more generous benefits to encourage people to have children, due to their low birth rates.

We have no kids, and for a long time I strongly resented the [-]bribes[/-] tax incentives (deductions, credits, school taxes, et cetera) for procreation, and to some degree they still feel unfair. But in more recent years I've mellowed and developed a sense of equanimity about it all, figuring that if nothing else, they are raising a generation that will pay my old age benefits some day, and I didn't have to pay for most of their room, board and education for 18+ years...