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F I S C A L I M P A C T R E P O R T

SPONSOR Snyder

DATE TYPED 3-2-2005 HB

SHORT TITLE Long Term Care Premium Payments Tax Credit

SB 896

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($9,500)

($19,000)

Similar Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Aging and Long Term Services Department (ALTSD)

SUMMARY

Senate Bill 896 would allow a taxpayer to claim an income tax credit for long-term care insur-

ance premiums, if the premiums were not claimed in the taxpayer’s itemized deductions or as a

deduction for unreimbursed or uncompensated medical care expenses (section 7-2-35 NMSA

1978). The amount of the credit varies with the taxpayers age, and is equal to: 25 percent for

taxpayers at least 45 years old but under 50; 37.5 percent for taxpayers at least 50 years old but

under 55; 50 percent for taxpayers at least 55 years old but under 60; 62 percent for taxpayers at

least 60 years old but under 65; and 75 percent for taxpayers at least 65 years old.

The provisions of the bill are applicable to tax years beginning on or after January 1, 2005.

FISCAL IMPLICATIONS

TRD estimates that the deduction provided in this bill would reduce state general fund revenues

by $9.5 million in FY05 and $19 million in FY06.

Based on national purchases of long-term care, TRD assumes that 1.5 percent of New Mexi-

cans—12,600 taxpayers—would claim the credit. They also assume an average premium of $3

thousand and an average credit rate of 50 percent, and thus an average credit of $1,500. Multi-

plying 12,600 taxpayers by $1500 thousand yields the $19 million full-year revenue impact.

Senate Bill 896 -- Page 2

Note: The TRD analysis may be looked at as a minimum impact. If the credit is successful in

encouraging more taxpayers to purchase long-term care insurance (as it should: the credit effec-

tively reduces the price of insurance), the impact will grow.

ADMINISTRATIVE IMPLICATIONS

TRD indicates that they could administer the provisions of the bill with existing resources.

TECHNICAL ISSUES

TRD’s analysis included this technical issue:

The bill is silent on what rules should be followed if the credits allowed in a given year exceed

the taxpayer’s liability. The usual approach is to specify a limited carry-forward period, like

three years.

OTHER SUBSTANTIVE ISSUES

The Agency and Long Term Services Department writes to say that the fiscal impact related to

the tax credit may be partially offset by lower Medicaid expenditures. They note however that it

is not known to what degree this incentive would induce people to buy insurance. (Note—it is

also unknown how many of these would end up qualifying for Medicaid).

TRD submitted this policy analysis:

By purchasing long-term care coverage, taxpayers avoid imposing financial burdens on family

members and other taxpayers. Industry representatives say typical purchasers of long term care

insurance are middle to high-income. Hence the proposal would tend to benefit primarily mid- to

high-income taxpayers.

As shown below, approximately 677,000 New Mexicans fall within the age groups that would be

allowed to claim deductions as a result of the proposed measure's enactment. They constitute

about 36% of New Mexico's total population.

Estimated New Mexico Population

Aged 65 and Over, 2003

Age Group

Number

of People

% of

Total

45 to 49 years

138,724

20.49

50 to 54 years

127,110

18.77

55 to 59 years

105,027

15.51

60 to 64 years

81,013

11.96

65 and above

225,266

33.27

Total:

677,140

100.00

Source: University of New Mexico Bureau of Business and

Economic Research :

http://www.unm.edu/~bber/demo/NM00_03agesex.xls

BT/yr