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Bush Assist With LTC Costs Is Tax Cut for Rich, Group Says

  • March 5th, 2004

As part of its fiscal year 2005 budget, the Bush administration is proposing two tax cuts related to long-term care: it would provide a deduction for the purchase of long-term care insurance, as well as an additional personal exemption for individuals with long-term care expenses.

Both proposals would mostly benefit higher-income individuals who do not need government subsidies while doing little to help low- and middle-income families, according to the Center on Budget and Policy Priorities, a Washington, D.C., research and policy group.

The administration's proposed above-the-line federal tax deduction would allow all taxpayers to deduct long-term care insurance policy premiums from their taxable income, regardless of whether they itemize on their tax returns. What's not to like? According to the Center, most low- and middle-income families that cannot afford to purchase long-term care insurance do not earn enough to owe income tax, and would thus gain nothing from a tax break, or are in the 10 percent or 15 percent tax brackets and would reap minimal benefits.

The deduction would be of greatest benefit, the Center says, to people in the top tax brackets, individuals who are likely to have long-term care insurance already or to have sufficient assets to be able to afford to meet their long-term needs themselves, without government help. "They also are the taxpayers," the Center notes, "who gained the most from the 2001 and 2003 tax-cut legislation and would benefit most from the other tax cuts the Administration is now proposing, such as new tax-favored savings accounts."

Similarly, the administration's proposal to allow families caring for a family member with long-term care needs to claim an additional personal exemption would provide the largest subsidies to those in the highest tax brackets, says the Center, and much less assistance to most middle-income families, and no assistance to low-income working families that do not earn enough to owe income tax.

"As a result," the Center concludes, "the Administration's long-term care proposals would have perverse effects. These proposals would consume a substantial amount of federal budget resources to provide new subsidies for long-term care to the very Americans who need such subsidies least, while doing little to address the large long-term care costs that millions of Americans face."

The Center suggests that a far better way to help defray a portion of long-term care costs through the tax code would be to institute a refundable tax credit for long-term care expenses. Unlike with a deduction, the value of a refundable tax credit would not vary with an individual's tax bracket.

For the Center on Budget and Policy Priorities' full analysis of the Bush administration's proposed tax relief for long-term expenses, go to: http://www.cbpp.org/2-18-04health.htm

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Last Modified: 03/05/2004

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