The tax that could bring over $50 million to help solve Virginia’s nursing home crisis
Virginia’s ongoing nursing home workforce shortage has caught the attention of policymakers and health leaders across the state. The Joint Commission on Health Care (JCHC), tasked with making health care policy recommendations and chaired by Del. Patrick Hope (D – Arlington), dedicated a specific study to the shortages in 2021, and found that one in five Virginia nursing homes are understaffed. This workforce shortage disproportionately impacts Medicaid and Medicare beneficiaries, which make up 77% of nursing facility residents.
JCHC staff estimated it would take $30 million to ensure nursing homes are properly staffed. While the JCHC considered options to create revenue, such as a provider assessment, one legislator has a different idea of where the $30 million and more could come from — a years-gone state estate tax.
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Delegate Vivian Watts (D – Fairfax) is perhaps one of the commonwealth’s strongest advocates for reestablishing a state estate tax (or inheritance tax) on real estate, insurance, and other assets at the time of a change in ownership, such as death. This only applies to estates valued at over $12 million for individuals and $25 million for couples, although the amount rises each year at standard inflation rates. Virginia’s estate tax was eliminated in 2007, but a federal estate tax remains.
The state tax—which Watts says would only affect about 20 estates per year—could rack up to $50-$60 million in annual revenue. That revenue, Watts said, could be redirected to increase Medicaid reimbursement rates for nursing home staff.
“Our standards for someone that qualifies to be placed in a nursing home on Medicaid are that you can’t perform at least two and oftentimes three of the five basic functions of daily living … This is an intensive level of care that is required. If we give more staffing to provide these essential services, our payment for Medicaid has to go up … having the revenue stream from the estate tax to address this is critical to passing because you can’t pass it if you’re not going to fund it.”
Watts acknowledged the opposition for reinstating the tax, which could be viewed as harmful to small business and farms as well as a form of double taxation—once as income when the asset owners are alive and again at death.
However, a study from the Federal Reserve Board found a number of estates actually have unrealized capital gains. According to the report, in 2013, 13% of estates valued at under $2 million and 55% of estates over $100 million had not been taxed. Today, Watts estimated up to 70% of estates have not been taxed.
“[The state estate tax is] closing a major loophole of no taxation—totally escaping taxes.”
Watts also said reinstating the tax would not target small businesses and farms.
“The other aspect of the capital gains taxation as it passes on, is that it is extremely important that you honor the federal government exemption of family owned businesses and farms. [There’s] no desire whatsoever to, in any sense, jeopardize the value of that business.”
Watts plans on introducing legislation in the 2022 session that would reinstate the tax, but this is not her first attempt. Last year, a similar bill received unanimous support in the House Finance committee, but was ultimately tabled.
Aside from generating more Medicaid revenue, Watts, who also serves on the Behavioral Health Commission, is advocating for funding more community-based health care services.
“Virginia has one of the highest usages of major hospitals for mental health care as opposed to community services. We have got to develop and fund and community mental health services, to keep crisis from developing, as well as providing the support that is essential to manage our large psychiatric hospital population — who need who are ready to be released from the hospital, back to their home community — but they have got to have support to keep that stability. Without the support, deterioration will occur and the whole cycle will go on again.”