WASHINGTON — Courting the baby boom generation, President Clinton will propose in his next budget a hefty new tax credit, $3,000 a year, to help offset the expense of caring for a frail, elderly family member.
The tax credit, which would cost the federal treasury $26 billion in lost revenue over 10 years, would provide financial help for 1.2 million people over the age of 65 and their caregivers.
The size of the proposed benefit is much larger than the $1,000 credit suggested by the president last year but ignored by Congress. The new credit, aimed to win the support of millions whose parents are becoming aged and infirm, will be a key feature in a Clinton tax cut proposal to be offered in the fiscal year 2001 budget next month.
The prospects for legislative action are much improved because this is an election year. Members of both parties are keenly interested in the issue. Republicans endorsed the idea of tax help for caregivers in their "contract with America" campaign manifesto when they won control of the House in the 1994 elections.
Clinton's proposal and congressional enactment "could be a big first step to help people who sacrifice a lot and provide the bulk of the care," said John Rother, legislative director for the AARP, formerly the American Assn. of Retired Persons. "This supports people in doing the right thing and taking care of their families," he said.
The administration decided to increase the amount it will seek for a tax break after Vice President Al Gore conducted 10 forums on long-term care over the last year. Participants repeatedly criticized the administration's plan for a $1,000 credit as inadequate. "We heard from a lot of people that $1,000 just didn't go very far," said a senior administration official.
The test for eligibility would be a stringent one. The tax credit would be available only when a person needs help from someone else to carry out at least three of the five basic activities of daily living: bathing, dressing, using the toilet, getting in and out of bed or a chair; and eating. The credit also would be available for caregivers if a person has a disabling mental impairment such as Alzheimer's disease.
Typically, a disabled individual would receive help each day, either from a family member or from someone hired to provide assistance on an occasional or full-time basis.
The purpose of the tax credit would be to help offset the financial burdens on the individual or the family. Often, spouses or children take time off from work or quit their jobs entirely to become caregivers. A 1999 study published in the journal Health Affairs found that it would cost $196 billion a year in wages if 25 million unpaid caregivers--family members and friends--were paid for their labor at the rate of $8 an hour.
Under the administration plan, the credit would be $1,000 in the year 2001 and would increase by $500 annually, reaching a maximum of $3,000 for the year 2005 and later. It would be available for single taxpayers with incomes up to $75,000 a year and couples with incomes up to $110,000 annually.
The credit could go to the disabled person if that person earns money and pays taxes or to the family member who is the primary caregiver. The credit would be subtracted directly from the tax bill. If an individual owed $3,000 in taxes and qualified for the credit, the tax bill would be reduced to zero. If taxes owed were $500, however, only $500 in credit could be claimed.
The White House estimated that about 2 million people would be helped.
Republicans indicated Tuesday that they are interested in the issue but noted that the GOP tax bill that Clinton vetoed last year included a deduction for the cost of buying long-term care insurance. "We're happy he's beginning to look at these issues and we look forward to working with him," said a spokeswoman for Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Finance Committee.
The GOP approach would have provided an additional personal exemption, $2,750, for a taxpayer who purchased insurance for long-term care needs.
The administration proposal, in addition to the tax credit, would offer long-term care insurance to federal employees and their families at group rates. It would also provide additional funds to the states to offer services so people could remain in their own homes instead of going into nursing homes.