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Update on Tax Reform

On December 20, the House of Representatives and the Senate voted to approve H.R. 1, tax reform legislation. Because the versions passed by the House and Senate differed, select members of each chamber came together in what is known as a conference committee to resolve disagreements between the two pieces of legislation. This final version of the legislation is the “conferenced” bill. 

Earlier in December, ASH sent letters to all members of the U.S. Senate and the U.S. House of Representatives, expressing concern with a number of provisions included in the original tax bills. The conferenced bill repeals the Affordable Care Act’s individual mandate, which the Congressional Budget Office (CBO) estimates will result in 13 million more Americans being uninsured by 2027. Without the individual mandate, it is predicted that younger, healthier individuals will choose to go without coverage, causing costs to increase for those remaining in the marketplace.

The legislation also limits the Orphan Drug Tax Credit. Currently, the credit allows manufacturers of drugs for rare diseases to claim a tax credit of 50 percent of the qualified costs of clinical and drug testing of orphan drugs. The new legislation will reduce this tax credit to 25 percent. The majority of hematology diseases, including cancers, such as acute myeloid leukemia and multiple myeloma, and non-malignant disorders, such as sickle cell disease and hemophilia, are considered to be rare diseases, affecting fewer than 200,000 people in the U.S. There are already limited treatment options for these rare diseases and the treatment options available are costly, with the majority of that cost falling on the patient.

The final version of the bill maintains the medical expense deduction which was originally slated to be repealed and makes it more generous for 2018 and 2019. Currently, individuals are eligible for this deduction if they are spending more than ten percent of their income on medical expenses. For 2018 and 2019, individuals will be eligible for this deduction if they spend 7.5 percent of their income on medical expenses. After 2019, the deduction will return to the ten percent threshold. The final bill also allows students to continue to deduct loan interest payments and keeps graduate student tuition waivers tax free. Both of these benefits were threatened in earlier versions of the legislation.

Congress waived the Pay As You Go (PAYGO) rule, which requires Congress to reduce entitlement spending in order to offset the increase in the deficit. If Congress had not acted on this, the CBO estimated that Medicare would see immediate cuts, as high as $25 billion per year, due to this legislation. Additionally, the threat of PAYGO could have caused the elimination of the Prevention and Public Health Fund, which currently comprises approximately 12 percent of the budget for the Centers for Disease Control and Prevention (CDC).

The President signed the legislation into law on December 22.