Date of Hearing: March 25, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 856 (

Author:Brough) – As Introduced Ver:February 20, 2019

FOR TESTIMONY ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income tax: credit: home care services

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

1. Contains the following legislative findings and declarations:
   1. Home care professionals or caregivers work with family members, community agencies, and medically trained professionals to ensure senior safety by recognizing potential signs of declining health and dangerous falls;
   2. The home care industry helps seniors to live with dignity and self-respect and helps seniors maintain healthy and active lifestyles for as long as possible in the comfort of their own home;
   3. Nine out of 10 Americans 65 years of age or older want to stay in their home as long as possible; and,
   4. Elderly Americans receiving home care generally need fewer trips to doctors and hospitals. As a result, home care reduced overall health care costs while also creating jobs.
2. Applies to taxable years beginning on or after January 1, 2020, and before January 1, 2024.
3. Provides that a "qualified taxpayer" is a single individual, or a spouse filing a separate return, whose gross income is $80,000 or less or a married couple filing a joint return, whose gross income is $160,000 or less.
4. Defines "home care services" as nonmedical services and assistance provided by a "registered home care aid", a home health agency licensed under Health and Safety Code (H&SC) Section 1725 et seq., or a hospice licensed under H&SC Section 1745 et seq. to a qualified taxpayer who, because of advanced age or physical or mental disability, cannot perform these services.
5. Specifies that these services shall enable the qualified taxpayer to remain in the qualified taxpayer's residence and include, without limitation, 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.
6. Specifies that the definition of "home care services" shall not authorize a "registered home care aid" to assist with medication that the qualified taxpayer self-administers that would otherwise require administration or oversight by a licensed health care professional.
7. Defines the term "registered home care aid" by reference to H&SC Section 1796.12(o).
8. Provides that in cases where the tax credit exceeds the taxpayer's tax liability, the excess credit amount may be carried over to the following taxable year.
9. Contains the following findings in compliance with Revenue and Taxation Code (R&TC) Section 41:
   1. The specific 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 homes and assisted living facilities in 2016; and,
   3. The Franchise Tax Board (FTB) shall collect data relating to the number of Californians using home care services and the number of Californians in nursing homes and assisted living facilities annually; and,
   4. 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.
10. Takes immediate effect as a tax levy.
11. Sunsets on December 1, 2024.

EXISTING LAW:

1. Allows various tax credits under the PIT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
2. Requires any bill authorizing a new credit to contain all of the following:
   1. Specific goals, purposes, and objectives that the tax credit will achieve;
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
   3. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. The requirements shall include the specific data and baseline measurements to be collected and remitted in each year the credit is in effect, for the Legislature to measure the change in performance indicators, and the specific taxpayers, state agencies, or other entities required to collect and remit data. (R&TC Section 41.)

FISCAL EFFECT: This bill would result in estimated General Fund revenue losses of $600 million in fiscal year (FY) 2019-20, $1.3 billion in FY 2020-21, and $1.6 billion in FY 2021-22.

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 IHSS.

Private pay home care services offer an attractive alternative to more costly care services such as assisted living and nursing home[s]. 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.

The home care industry provides crucial service to seniors. Nine out of ten Americans aged 65 or older [want] to stay in their homes as long as possible and home health services help make that possible. These services help seniors live with dignity and self-respect, maintain a healthy and active lifestyle, and remain in their homes as long as they can. Additionally, because seniors receiving home care . . . spend less time in hospitals and doctors' offices, home care services reduce overall health care costs while creating jobs. However; the combination of a rapidly increasing senior population, increased labor costs, and many families' lack of Long Term Care Insurance coverage has led to home care service costs that are unaffordable for many middle-income taxpayers. By providing that home care service costs from only trained and licensed professionals qualify for the tax credit, AB 856 incentivizes families to utilize the services of home health care providers who are properly trained to keep their patients safe.

AB 856 would keep more seniors in their own home, but also provide financial relief to many veterans, individuals with special-needs and those on a fixed income by establishing a tax credit for individuals that incur expenses for home care services.

1. This bill is supported by the California Association for Health Services at Home, which notes:

As our senior population continues to grow, home care services will become increasingly in demand. However, for many middle income taxpayers, home care services are unaffordable. This is because home care services are primarily paid for out of pocket as the services are not a covered benefit by most health plans. AB 856 would make home care services more affordable for more seniors by allowing a tax credit to be taken against one's tax liability.

A tax credit for home care services incentivizes the use of home care services where professionally trained and licensed home care aides can keep individuals safe in their home. Elderly Americans receiving home care generally need fewer trips to their health care providers and hospitals and it reduces the risks or costly institutionalization. As a result, home care services reduce overall health care costs while also creating jobs. AB 856 has been drafted to ensure that only home care services provided by licensed home care aide organizations and licensed home health agencies qualify as expenses for purpose[s] of the tax credit.

1. 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).
      

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 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.

• 1. Who benefits? This bill provides a tax credit to qualified taxpayers for specified home care services. This credit is primarily designed to help seniors afford what, by all accounts, can be a very useful but expensive service. That said, it is important to identify who is likely to benefit from this credit.

As currently drafted, it would appear that this credit only covers expenses incurred by a qualified taxpayer. That is to say, if an adult child incurred costs to hire home care services for an aging or sick parent, he or she would not qualify for this credit. Only an individual who incurs costs directly would qualify.

Moreover, by their very nature, nonrefundable credits like the one this bill proposes only benefit individuals with a tax liability to offset. If a senior taxpayer lacks sufficient income to generate a tax liability, a credit is of little use and will not help defray the cost of home care.

Taxpayers with too much income, however, are precluded from claiming this credit. Thus, it would appear that this credit is designed to partially defray home care costs incurred by middle-income seniors. This, of course, raises the perineal question of whether such a tax credit would serve as an incentive or reward. Typically, tax credits are conferred as a matter of legislative grace to encourage socially beneficial behavior that likely would not take place absent a financial incentive. One could argue, however, that a married couple with $160,000 in gross income would likely make the decision to hire a home care aide independent of a state incentive.

• 1. Increasing the cost of home care services: If this credit were to incentivize a large number of additional seniors to engage home care services, it may inadvertently increase the overall cost of such services. When the government provides a consumer subsidy, it generally encourages consumers to buy more of the product or service 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 may increase. Individuals who are ineligible or unaware of the credit may, in turn, have to pay more for the same level of service or reduce the quantity purchased to meet existing financial constraints.
  2. 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 this goal.
  3. In-Home Supportive Services (IHSS): California's IHSS program provides personal care and domestic services to individuals who are aged, blind, or disabled and who live in their own homes. IHSS is provided to those who otherwise might be placed in an out-of-home care facility but who can safely remain in their own home if IHSS services are received. While every legislative proposal and budgetary allocation contains trade-offs, this Committee may wish to consider whether a General Fund expenditure of over $1 billion annually would be better targeted to shoring up the IHSS program.
  4. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. This Committee has recently adopted a new policy, requiring that all new tax expenditure proposals comply with the requirements of R&TC Section 41. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. This bill, as currently drafted, meets all of these requirements.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association for Health Services at Home

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098