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VIEW FROM WASHINGTON / ROBERT A. ROSENBLATT : How Will Washington's Budget Deals Affect Your Pocketbook?

December 03, 1995|ROBERT A. ROSENBLATT | ROBERT A. ROSENBLATT is a reporter in The Times' Washington bureau, covering health, financial services and other business-related issues

The federal government shuts down for six days. President Clinton and the Republicans scream at each other over the budget. U.S. troops prepare to venture into harm's way as patrolling peacekeepers in Bosnia.

With all the mega-stories pouring out of Washington these days, there's a lot of key nuts-and-bolts matters of the pocketbook that are not getting front-page attention--or even back-page attention.

Cutting through the rhetorical fog, here are three crucial areas to watch when it comes to figuring out how and where your money may be spent in the years ahead.

* If you have above-average income and have a parent in a nursing home, the state government may decide to insist that you contribute to your parent's financial support, sharing in the nursing home bills that can run $30,000 a year and more.

The massive reconciliation bill passed by Congress would end the status of Medicaid as an entitlement, a guarantee by the federal government to help the poor with their medical bills. The growth of spending would be cut by $163 billion over seven years, and the states would decide on the level and distribution of benefits. Current federal law prevents states from calling on relatives to shoulder responsibility for nursing home bills. But the Republican legislation leaves the choice to each of the 50 states. They can require adult children, with income above the median, to make a contribution to the nursing home bill. The national median income--half the households make more and half less--was $32,264 last year. The California figure was $35,331.

Medicaid is essentially a welfare program, with costs divided between the federal government and the states. In most states, a person can qualify for help with nursing home costs when they have assets of $2,000 or less. Other controversial practices, now forbidden under federal rules, would also become legal in the states if the reconciliation bill becomes law.

Nursing homes could ask spouses or children to sign a financial pledges and guarantees before accepting someone into the facility, according to Patricia Nemore, a staff attorney with the National Senior Citizens Law Center.

Nursing homes could also impose separate charges for services, such as physical therapy, now considered part of the basic Medicaid coverage. And states could impose liens on the family home and require it to be sold to satisfy a nursing home bill, even if family members are still living in the home.

*

President Clinton has vowed to veto the massive reconciliation bill passed by the Republican Congress, and the White House and the GOP congressional leaders are now negotiating over the future of Medicaid and other key government programs.

* Politicians here talk a lot about the child-care credit and the capital gains tax cut in the GOP program. Overlooked is the proposed revival and dramatic expansion of the individual retirement account.

Current law allows any individual to put aside $2,000 a year, fully deductible, into an IRA. But if the worker or spouse has a pension plan on the job, the IRA is available only to those with incomes up to $25,000. The ceiling for a couple is $50,000.

These income limits would be boosted significantly by the GOP reconciliation bill, allowing millions more Americans to get IRAs. The limits would be increased by $5,000 a year until 2007, reaching $85,000 for an individual and $100,000 for a couple. After that, it would be indexed each year for inflation.

The IRA proceeds can be withdrawn after age 59 1/2, and the profits are subject to ordinary income taxes.

*

But the bill offers a special new sweetener for investors and savers--the "American Dream Savings Account," where profits are completely tax-free.

Unlike the IRA, there is no deduction for the initial $2,000 per year contribution. But any profits are tax-free if the account is untouched for five years. Anyone regardless of income or pension participation can deposit $2,000 into the account.

After five years, the account holder would be allowed to withdraw tax-free up to $10,000 to buy a first home, or money to pay for college tuition, or funds to pay for catastrophic medical expenses (anything exceeding 7.5% of income). Anyone out of work 12 weeks or more could withdraw the money tax-free. Otherwise, the account holder waits until age 59 1/2 to enjoy all the profit without paying any taxes.

The proposed new account should "become very popular. It's a large financial incentive," said Russell Galer, assistant counsel for the Investment Company Institute, which represents the nation's mutual fund industry. "You never pay taxes on the gains, ever."

* Charities and health groups that get federal dollars are nervous these days about plans to limit lobbying efforts by nonprofit organizations.

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