Milo’s Medicaid Tax Hat Trick

It’s a hat trick worthy of Milo the magician.  The valid worries of many North Carolina counties about rising Medicaid health costs are being used for bare political gain.  Normally raising $500 million in new revenue – the amount necessary to relieve counties of the share they pay for the state’s Medicaid program – would mean the General Assembly would have to make painful decisions about either raising taxes or cutting spending.

The need for new revenue to meet this goal of Medicaid relief has met its match in the NC Senate’s desire to let the so-called temporary taxes passed in 2001 on the rich and 1/4 cent added to the sales tax to expire.  Letting these taxes expire means less revenue, not more.  But you need more revenue, not less to relieve counties from paying for Medicaid costs.  What’s a politician to do – especially if you want to reduce taxes on the wealthy who are the ones who write most of the campaign checks after all?

The ingenious answer:  Let local governments raise taxes while state government in Raleigh reduces taxes.  You get more revenue to relieve counties of the Medicaid burden while satisfying your wealthy contributors you are reducing their income taxes.  The sugar on the strawberries for low and middle class folks?  Since sales taxes are the ones most likely to be raised at the local level, they pay more in sales taxes to cover the drop in the income tax rate for the wealthy.  Of course, since the sales tax was raised at the local level, not the state level, that lets the politicians in Raleigh off the hook.

That’s all this Medicaid debate in Raleigh is really about.  The Governor and the NC House had it right.  Counties – especially poorer counties where Medicaid costs are over 10% of their budgets – need Medicaid relief.  That costs big money.  So keep the income tax on the wealthy and the 1/4 cent sales tax and use the revenue you don’t lose from letting these taxes expire to help target Medicaid relief to these poorer counties. 

Other discussions about tax swaps and revenue this and that are simply versions of Milo’s hat trick.  Basic misdirection that enacts tax cuts for the wealthy while finding more revenue by increasing taxes on low and middle income residents.