The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2019, and before January 1, 2023, in an amount equal to 25% of the amount paid or incurred during the taxable year year, not compensated for by insurance or otherwise, by a qualified taxpayer, as defined, for home care services, not to exceed $5,000. The bill would define home care services to mean nonmedical services and assistance provided by a registered home care aide, as defined, a licensed home health agency, or a licensed hospice to a qualified taxpayer who, because of advanced age or physical or mental disability, cannot perform these services that enable the qualified taxpayer to remain in his or her residence and include specified tasks.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2018, 2019, and before January 1, 2023, in an amount equal to 25% of the amount paid or incurred during the taxable year by a qualified taxpayer, as defined, for home care services not to exceed $10,000. $5,000. The bill would define home care services to mean nonmedical services and assistance provided by a registered home care aide, as defined, a licensed home health agency, or a licensed hospice to a qualified taxpayer who, because of advanced age or physical or mental disability, cannot perform these services that enable the qualified taxpayer to remain in his or her residence and include specified tasks.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2018, and before January 1, 2023, in an amount equal to the amount paid or incurred during the taxable year by a qualified taxpayer, as defined, for home care services not to exceed $10,000. The bill would define home care services to mean nonmedical services and assistance provided by a registered home care aide, as defined, a licensed home health agency, or a licensed hospice to a qualified taxpayer who, because of advanced age or physical or mental disability, cannot perform these services that enable the qualified taxpayer to remain in his or her residence and include specified tasks.

This bill would take effect immediately as a tax levy.

Existing sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state.

This bill would make nonsubstantive changes to the provision designating the Sales and Use Tax Law.

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2703

Author:(Mayes) – As Amended Ver:May 9, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows a personal income tax (PIT) credit worth 25% of the amount paid by a qualified taxpayer for home care services. The credit may not exceed $5,000 and is available for tax years 2019 through 2022.

FISCAL EFFECT:

Annual General Fund revenue loss in the range of $800 million to $1.1 billion in 2018-19, $1.4 billion to $2.3 billion in 2019-20, and $1.8 billion to $2.6 billion in 2020-21. (See Comment #3).

COMMENTS:

1. Purpose. According to the author, AB 2703 will keep more seniors in their homes by establishing a tax credit for an individual’s expenses for home care services. Supporters note that home care has become of a valuable part of the lives of many seniors and disabled persons, and they note that AB 2703 may lower the cost of health care by helping seniors avoid expensive hospital stays.
2. Home care services. AB 2703 defines home care services as nonmedical services and assistance provided by a home aid, a licensed home health agency, or a licensed hospice to a qualified taxpayer who cannot perform those services. The types of services defined in the bill include bathing, dressing, feeding, exercising, personal hygiene, toileting and incontinence care, assisting with medication that the client self-administers, housekeeping, meal planning and laundry, and transportation.
3. Insurance compensation. AB 2703 was recently amended to exclude amounts spent on home care services compensated by insurance, such as long-term care insurance or paid family leave. A significant majority of households covered by this proposed credit (households with taxable income) receive uncompensated care, and it is unknown how much this provision will reduce AB 2703’s costs. The ranged estimates provided in this analysis reflect different assumptions related to the share of households receiving compensated home care services.
4. Fiscal implications of tax expenditures. Existing law allows for various tax expenditures such as credits, deductions, exclusions, and exemptions for particular taxpayer groups. These features of the tax code can result in significant state costs through foregone tax revenue and, in many cases, policymakers have little control over the revenue loss that occurs in any given year. As a result, many tax expenditure bills now include provisions designed to give the Legislature more control over costs. Examples of such provisions include placing a sunset date or making a bill’s provisions contingent upon a separate budget appropriation. AB 2703 contains a sunset.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: May 7, 2018

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 2703 (

Author:Mayes) – As Amended Ver:April 25, 2018

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income tax: credit: home care services

SUMMARY: Allows, under the Personal Income Tax (PIT) Law, a 25% credit for the amount paid or incurred during the taxable year by a "qualified taxpayer" for "home care services," not to exceed $5,000. Specifically, this bill:

1. Allows the credit for each taxable year beginning on or after January 1, 2019, and before January 1, 2023.
2. Defines "qualified taxpayer" as a single individual, or a spouse filing a separate return, whose gross income is $100,000 or less or a married couple filing a joint return, whose gross income is $200,000 or less.
3. Defines "home care services" as nonmedical services and assistance provided by a "registered home care aide," a licensed home health agency, or a licensed hospice to a qualified taxpayer who, because of advanced age or physical or mental disability, cannot perform these services. The services enable the qualified taxpayer to remain in his or her residence and include assistance with the following: bathing, dressing, feeding, exercising, personal hygiene and grooming, transferring, ambulating, positioning, toileting and incontinence care, assisting with medication that the client self-administers, housekeeping, meal planning and preparation, laundry, transportation, correspondence, making telephone calls, shopping for personal care items or groceries, and companionship.
4. Defines "registered home care aide" as an affiliated home care aide or independent home care aide, 18 years of age or older, who is listed on the home care registry.
5. Allows unused credits to be carried forward to the following taxable year.
6. Provides the following in compliance with Revenue and Taxation Code Section 41:
   1. The goal of this tax credit is to reduce health care costs by encouraging cost-effective home care services and to avoid costly nursing home and assisted living facilities;
   2. The baseline used to determine the progress of this tax credit is the number of Californians using home care services and the number of Californians in nursing and assisted living facilities in 2016;
   3. The Franchise Tax Board (FTB) shall collect data related to the number of Californians using home care services and the number of Californians in nursing homes and assisted living facilities annually; and,
   4. The taxpayers utilizing the tax credit shall submit a receipt or other proof of costs paid or incurred in connection with home care services to the FTB.
7. Makes findings and declarations related to home care services.
8. Repeals the credit on December 1, 2023.
9. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Provides various tax credits designed to provide tax relief for taxpayers who incur certain expenses or to influence behavior, including business practices and decisions. These credits generally are designed to provide incentives for taxpayers to perform various actions or activities that they may not otherwise undertake.
2. Allows an individual taxpayer to deduct unreimbursed medical expenses as an itemized deduction, but only to the extent that such expenses exceed 7.5% of the individual’s adjusted gross income.
3. Defines "medical expenses" as amounts paid for: (a) the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body; (b) transportation primarily for and essential to such medical care; (c) medical insurance that covers such medical care (including essential transportation and amounts paid as premiums for Medicare Part B supplemental medical insurance); and, (d) long-term care services.

FISCAL EFFECT: The FTB estimates General Fund revenue losses of $1.1 billion in fiscal year (FY) 2018-19, $2.3 billion in FY 2019-20, and $2.6 billion in FY 2020-21.

COMMENTS:

1. The author has provided the following statement in support of this bill:

According to the Public Policy Institute of California, California's senior population will grow by more than 4 million by the year 2030 and will be ethnically more diverse and face challenging care needs, including increased demand for services covered by Medi-Cal and [In-Home Supportive Services (IHSS)].

Private pay home care services offer an attractive alternative to more costly care services such as assisted living and nursing home. According to a 2015 Genworth study, the most comprehensive of its kind, the annual cost of home care is roughly half that of the cost of nursing home care. Home care saved the United States Treasury roughly $25 billion in hospital costs alone in 2008.

AB 2703 would keep more seniors in their own home and provide financial relief to the California General Fund by establishing a tax credit for individuals that incur expenses for home care services, not to exceed ten thousand dollars ($10,000).

1. Proponents of this bill argue "[h]ome care has become a valuable part of the lives of many seniors and disabled persons of all ages. As we age, we may face declines in our ability to dress, bathe, and groom ourselves. Help in these very personal areas can be supplied by expensive assisted care facilities or nursing homes. But the vast majority of seniors prefer to stay in their own homes as long as possible. Home care makes that possible and a tax credit for home care can make the difference." Proponents state that the intent of this bill is to "lower the cost of health care by helping seniors avoid expensive hospital stays."
2. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).
   2. How is a tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are typically reviewed less frequently than direct expenditures. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote. This bill contains a four year sunset.
   3. Who benefits? According to information provided by supporters of this bill and information from the FTB, home care service is very expensive and can easily cost tens of thousands of dollars per year. FTB, in its previous analysis of this bill, assumed an average annual home care service cost of $58,000. Clearly, these types of services are expensive and are generally available to a wealthier segment of the population. Tax credits are generally provided to encourage socially beneficial behavior that likely would not occur absent a financial inventive. However, because this bill targets a service that is generally accessible only to individuals and families with higher incomes, it is possible that many individuals are already paying for these types services. In these situations, this credit may not be encouraging new behavior but may simply be offsetting the high cost of an existing expense.
   4. Increasing the cost of home care services: Although this credit is intended to make home care services more accessible, providing a subsidy to consumers will likely increase the price of home care services. When a government provides a consumer with a subsidy, it encourages consumers to buy more of the product and the demand curve shifts up and to the right. As a result of this subsidy, both the price and the quantity of home care service will increase. Individuals who are ineligible or unaware of the credit will likely have to pay more for the same level of service or reduce the quantity purchased to meet existing financial constraints.
   5. Does the cap help? Although the credit is limited by a cap on gross income, there appears to be no cap on overall wealth. Seniors, especially retired seniors, may have less annual income but may have a higher net worth due to savings and other investments. The purpose of the gross income cap is ostensibly to prevent very wealthy individuals from taking advantage of the credit; but because of how financial situations change as individuals get closer to retirement, the cap may not necessarily accomplish that goal.
   6. In-Home Supportive Services (IHSS): The IHSS program provides personal care and domestic services to low-income individuals to help them remain safely in their own homes and communities. To qualify for IHSS, a recipient must be over the age of 65, blind, or disabled and in most cases have income below the level necessary to qualify for Supplemental Security Income/State Supplementary Payment cash assistance. IHSS recipients are eligible to receive up to 283 hours per month of assistance with tasks such as bathing, dressing, housework, and meal preparation. The Governor’s budget proposes a total of $11.2 billion (all funds) for IHSS in 2018-19, which is about $950 million (9%) above estimated expenditures in 2017-18. Of the total $11.2 billion available to IHSS, only a portion of the funding will be paid by the state; the remaining balance is paid with a combination of federal and county funding. Recent changes to the cost sharing provisions have caused the county share of IHSS to increase. The GF is currently providing additional support to the counties to cover the counties' increased share, but GF support to counties is expected to decrease from $400 million in 2017-18 to $330 million in 2018-19, and eventually to $150 million in 2020-21 and future years. It is unclear if all counties will be able to maintain the same level of IHSS services without making reductions to other social services or by raising taxes. The Committee may wish to consider the appropriateness of providing a credit to a wealthier segment of the population instead of utilizing the funds to ensure that local governments continue to provide IHSS.
   7. Double-Dipping: This bill provides a tax credit for the amount paid or incurred during the taxable year by a qualified taxpayer for home -services. However, without further clarification, expenses that are reimbursed by insurance or other sources would also be included within the calculation of this credit. As such, the author may wish to provide clarifying amendments to ensure that a taxpayer does not receive the tax credit for a reimbursed expense.
   8. Section 41: In addition to other provisions, this bill requires the FTB to collect data related to the number of Californians using home care services and the number of Californians in nursing homes and assisted-living facilities annually. The FTB is primarily charged with collecting the personal income tax and corporate income tax, and may not be the best agency to track the number of Californians using home care services or the number of Californians in nursing homes and assisted living facilities. The author may wish to appoint a different agency to collect this information.

REGISTERED SUPPORT / OPPOSITION:

Support

Congress of California Seniors

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098