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Bet If It Waddles and Quacks, It Must be a Tax

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Like the old saying goes, if it waddles like a duck and it quacks like a duck, then it must be a duck. In this case it looks like a tax and it sounds like a tax, but they tell us it is not a tax.
Well, this is the tale that the proponents of the latest proposal to provide some kind of coverage for long- term care are telling lawmakers. For only $10 a month, the proposed plan will be able to provide $70 per day for up to 450 days as payment for Average Daily Living activities such as dressing and feeding a person.
Every resident will be required to participate upon reaching age 25 and must have contributed for a minimum of ten years in order to receive the maximum benefit of $70 per day. Most importantly they proclaim that this is not a tax, but an “investment” in the future. Don’t let it bother you that you have no choice but to participate whether you like it or not.
And while the proponents proudly proclaim that it is “only” $10 a month, deep in their proposal they admit that both benefits and premiums will have to increase because of inflation. No doubt proclaiming that it is a mere $10 makes the amount seem affordable. But taken another way, $10 is what you pay in the 4% general excise tax on $250 of groceries every month or for a couple it would be $500 in groceries. If lawmakers are complaining about the 4% on food purchases because they have no choice but to pay it, one would imagine that they would view this mandatory contribution with just as much distaste.
Ah, but the proponents argue that this will provide long-term care coverage for residents. Unfortunately what they don’t point out is that the benefit promised falls far short of what will be needed for the full range of long-term care services. So will residents be lulled into believing that all of the costs of long-term will be covered by this proposal and that they don’t need to set other funds aside for their long-term care needs nor purchase long-term care insurance?
Proponents of the proposal also argue that this is not another government insurance program, but the money will be managed by a trust company or other financial institution. They point out that when a resident is certified as needing this care, the fund will issue the resident a check at the rate of $70 for each day the care is needed. They point out that the benefits do not have to be paid out all at one time, but can be tapped as needed. And if the resident has not put in ten years of contributions, they may be able to claim a benefit equal to the ratio of the number of years they have contributed. If they contributed for 6 years, then they would be able to claim a benefit equal to 60% of the maximum benefit or $42 a day. That raises an interesting point in that if a person contributes for 20 years, can that person claim twice the amount of the maximum benefit? While it is doubtful that would be allowed, it raises the question of whether allowing a partial benefit jeopardizes the overall integrity of the plan.
Given the current proposal to “scoop” the money in the hurricane relief fund, can taxpayers really trust that the money collected under this proposal will be there for their needs or will the funds be “scooped” when another budget emergency arises?
It appears that this proposal called “Care Plus” carries many of the inherent financial pitfalls that plague Social Security like not having enough of a reserve. Unfortunately, like other efforts to address long-term care which preceded this, all of the attention is focused on the demand side of the equation, searching for a way to raise the money to pay for long-term care. Instead of looking solely at the demand side, policy makers need to look at the supply side to make sure the services are available when the need arises.
And yes, there is a role for government in insuring there is a sufficient supply of long-term care services that looks beyond the myopic focus of merely raising the money to pay for long-term care. The state and county have lands which could be used to develop long-term and intermediate-care facilities, declaring long-term care a public purpose could open up all sorts of subsidized financing for capital facilities, and finally, to insure there are enough providers of long-term care services, the state could establish career curricula at the community colleges.
Merely coming up with yet another tax to finance yet another state program is not the answer to this pressing issue. As all taxpayers will realize, contrary to what the proponents argue, that “only $10 a month” is nothing more than another tax on the already overburdened taxpayer.

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