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Wednesday, March 27, 2013

Expansion likely leads to feds paying for tax cuts in Arkansas

Posted By on Wed, Mar 27, 2013 at 11:41 AM

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  • Rep. Charlie Collins

In pushing for his tax cut yesterday, Rep. Charlie Collins mentioned the possible healthcare expansion deal. It’s not a surprise that he would make this connection given that Gov. Mike Beebe has said that he would be willing to go along with a tax cut package if expansion is approved. It’s true that the legislature could override a veto and ram whatever tax cuts through that they want, but politically, it would be a plus to have the governor on board. (Max has more on potential positioning from the governor and Democrats on this.)

We’ve heard lots of puzzle-piece metaphors describing the homestretch of legislation with budget impacts. Collins described his own top priority — tax cuts — as one piece of a Rubik's cube. Healthcare is another piece. And it’s true — the decision on expansion has a big impact on the total revenue picture, and thus taxes. No, not because of House Speaker Davy Carter’s line about how eventually the “job creators” will pay for healthcare expansion, so it’s only fair to enact a capital gains tax cut (I doubt even Carter himself really believes that). But expansion would create new wiggle room in the budget.

"If we get all of these pieces together the revenue picture looks a lot better," Collins said. "Obviously that has an impact. It just flat out does."

As we’ve been screaming from the hilltops for months, expansion is obviously revenue positive for the state bottom line in the near term and would likely continue to be in 2020 and beyond. It flips the Medicaid shortfall to a significant surplus. DHS projected that Medicaid expansion saved more than $700 million to the state between 2014 and 2025. The calculus changes with the “private option” but the conclusion is the same: a great deal for the state’s bottom line. When you're getting federal match rates between 90-100 percent on useful state spending, you're getting a great deal. Was before, is now.

Collins (as with all Republican lawmakers, careful not to endorse anything just yet) said he was "stunningly encouraged by the evolution of this healthcare debate."

"What we’re now talking about is the potential to return Arkansas taxpayer dollars which would have gone to the federal government in taxes back to our state into some type of private-market insurance subsidy arrangement," he said. We can argue until the cows come home about whether this is really less Obamacare-ish than the same money simply going directly to (less costly) Medicaid expenditures, but the point is that Collins, for whatever reason, is more comfortable accepting the huge pot of federal money this way. Now the political argument is what to do with the revenue savings likely coming in to the state if Arkansas goes forward with expansion. Obviously we take issue with the approach put forward by Collins and Carter (and they were itching for tax cuts regardless of healthcare policy).

However you slice it, in practice, it sure looks like the feds are basically going to pay for state income and capital gains tax cuts in Arkansas.

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