Anxious to avoid raising taxes too much to pay for their health care proposals, the Obama Administration and its Congressional allies hit on a great new idea: Make the states raise their taxes to fund the program instead.
Both the House and the Senate bills require that states cover a larger percentage of their people under Medicaid a joint state and federally funded program. The idea was to force the state to raise their taxes to cover a big part of the health care bill for treating poor people. Since the Feds can simply charge any increase in spending to their already overdrawn bank account, but the states have to balance their budgets, the increased state spending for Medicaid will cause sharp increases in state taxes. And the Governors will get the blame, not Obama and not the Congress.
The House bill requires states to give Medicaid to those whose incomes are less than 150% of the poverty level while the Senate requires coverage up to 125%. For most states, this is a hefty increase.
In some states, like New York, where Medicaid covers everyone making 150% of the poverty level already, there will not be any extra required spending.
But not so in California, which only covers 100% of the poverty level. Were the House bill to pass, the already fiscally beleaguered state would have to increase its Medicaid spending on poor people by 50%, at least an extra $2 billion a year and perhaps more.
In many Southern states, the Medicaid program only covers a portion of those living below the poverty level. For these states, the requirement to cover all those in poverty and then 50% more will cause enormous increases in taxes. In Arkansas and Louisiana, where swing Senators Pryor, Lincoln, and Landrieu come from, the cost could exceed $1 billion for each state each year.
Unfunded mandates for state spending imposed from on high in Washington have always rankled governors. The Senators and Congressmen in Washington get the credit for spreading largesse but the Governors in the states get the blame for the taxes that are needed to pay for it.
Since Democrats currently control the vast majority of governorships, this process of making their own party members take the rap for raising taxes is politically self-destructive in the extreme. But Obama is so desperate to pass his health care legislation that he doesn't care what havoc in his party he reaps in the process.
The question now is whether the governors of the fifty states, particularly the Democrats, are going to sit idly by and let their budgets be destroyed by the health care bill.
When the Republicans in Congress insisted on tacking big cuts in aid to legal immigrant benefits for disability and other areas onto the welfare reform bill, it was the Republican governors who forced them to repeal the pernicious cuts the very next year. They did not want to have to raise taxes to make up for the withdrawal of federal funding.
Now the Democratic governors face the same situation. If Obamacare passes with its expansion of Medicaid benefits but with no federal funding of the extra spending it is these Democrats and their legislatures that will have to bite the bullet and pass new taxes to pay for it.
Since states are already facing mammoth financial problems as a result of dwindling revenues and swelling expenditures in the recession, these additional burdens could be politically fatal. Unless Democratic governors want to avoid the fate of one of their late brethren, former Governor Jon Corzine of New Jersey, whose political career was ended in a blaze of new taxes, they might want to call their buddies in Congress and ask them to lay off the unfunded mandates, particularly during this recession.