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Senior Citizens' Equity Act

Summary 

The Senior Citizens' Equity Act removes financial burdens on American senior citizens to (1) allow them to earn more income without losing Social Security benefits and (2) reduce the percentage of Social Security benefits on which they must pay taxes to the level before they were increased by the Clinton Administration in 1993. The bill provides tax incentives to encourage individuals to buy private long-term care insurance and makes it easier for seniors to reserve retirement communities for adults only without facing lawsuits.

Increase of the Social Security Earnings Limit Threshold

Under current law, senior citizens between the ages of 65 and 69 lose one dollar in Social Security benefits for every three dollars they earn above $11,160. This earnings test amounts to an additional 33 percent marginal tax rate, on top of existing income taxes, and punishes seniors who choose to remain productive beyond age 64. Over five years, the bill raises to $30,000 the amount which seniors can earn before losing Social Security benefits. The limit will be raised according to the following schedule. 

By January 1, 1996 seniors can earn $15,000 without losing Social Security benefits. 

By January 1, 1997,    $19,000
By January 1, 1998,    $23,000
By January 1, 1999,    $27,000
By January 1, 2000,    $30,000

Repeal of Clinton's Social Security Benefits Tax 

The 1993 Omnibus Reconciliation Act (OBRA 1993) requires senior citizens who earn more than $34,000 (singles) or $44,000 (couples) to pay income taxes on 85 percent of their Social Security benefits. Over five years this bill returns the amount of Social Security benefits subject to income tax to 50 percent, the level of benefits taxable before OBRA. The percentage of Social Security benefits subject to income taxes will drop from 85 percent to: 75 percent for tax year 1996, 65 percent for tax year 1996, 60 percent for tax year 1997, 55 percent for tax year 1999, and 50 percent for tax year 2000. 

Tax Incentives for Private Long-Term Care Insurance 

The bill includes several provisions pertaining to the tax treatment of long-term health care included in the Affordable Health Care Now Act (H.R. 3080), the House Republican health reform package: 
  • allows tax-free withdrawals from IRAs, 401(k) plans and other 
  • qualified pension plans in order to purchase long-term care insurance; 
  • allows accelerated death benefits to be paid from life insurance 
  • policies for individuals who are terminally ill or permanently 
  • confined to a nursing home; and 
  • treats long-term care insurance as a tax-free fringe benefit and 
  • the same as accident and health insurance for taxation purposes. 
The bill also allows deductions for long-term care premiums, limited to the following amounts (indexed for inflation annually): 
Age 40 and under          $ 200
Age 40 to 50              $ 375
Age 50 to 60              $ 750
Age 60 to 70             $1,600
Age 70 and older         $2,000

Senior Citizen Retirement Communities

Current law is vague on what constitutes senior housing. Consequently, lawsuits have been brought against real estate agents and retirement community board members. The bill allows housing communities to meet the Fair Housing Amendment Act's "adults-only housing test" if those communities can prove that at least 80 percent of their units have occupants age 55 or older. 

The Fair Housing Amendments Act of 1988 prohibits discrimination based on familial status, although it does include a vague definition of adults-only housing. Under current law, senior communities are exempt from the 1988 law's anti-discrimination provisions if at least 80 percent of the units in a senior community are occupied by those 55 and over, and the community has "significant facilities" such as support rails and transportation vans. The law, however, does not specifically state what must be present to merit exemption. 

This current vague definition has posed problems for many retirement communities and has resulted in law suits against real estate agents and retirement community board members. This provision of the bill repeals the significant facilities test and exempts real estate agents and community board members from liability for monetary damages in lawsuits if they acted on a good-faith belief that the community was exempt. Thus, senior communities must only meet the 80 percent test to be awarded an exemption. 

Background

Americans over the age of 65 number more than 30 million and constitute more than 12 percent of the population. Two important areas of concern for them are Social Security and the cost of long-term care.

The Social Security Earnings Test

Congress passed the Social Security Act in 1935 as part of President Roosevelt's New Deal, establishing a program to provide income to older Americans. The program has always included an earnings test. There have been many proposals to alter or end the earnings test, but none has been enacted. Social Security benefits are intended to compensate for income lost because of retirement, but many seniors have complained theat it is unfair to punish those who keep working by not allowing them to collect Social Security benefits when they have paid into the system all their working lives. 

Social Security Benefits Tax 

The other provision of the bill affecting Social Security deals with a relatively new phenomenon. Social Security benefits were not taxed at all until 1984. It was then that a system was established whereby individuals with total income of $25,000 or more and couples with a total income of $32,000 or more would have to pay taxes on up to 50 percent of their Social Security benefits. In 1993 President Clinton sought to tax up to 85 percent of Social Security benefits. Although the House approved this provision as part of the 1993 Omnibus Budget Reconciliation bill (OBRA 1993), the provision was modified in conference. The final version of the bill increased the maximum percentage of benefits that could be taxed to 85 percent, but also created a second set of thresholds at $34,000 for individuals and $44,000 for couples. OBRA 1993 created a complicated system whereby recipients who had to pay taxes on 50 percent of benefits continue to do so, and those whose income exceeds the new threshold have to pay taxes on up to 85 percent of benefits. 

Long-Term Care 

The cost of long-term care concerns senior citizens and others. About 7.1 million of the elderly need long-term care, and estimates indicate 13.8 million may need it by 2030. Most long- term care is paid for by private individuals and Medicaid. Many elderly do not need constant medical attention, but do need assistance with daily activities. Medicare and most other health insurance plans do not cover most services associated with long- term care. In order to qualify for Medicaid assistance for long- term care, individuals must first "spend down" a significant portion of their own savings and other assets.



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