GOP Politicians Love the Spending, Reserve Right to Criticize the Revenue

Last week, three Republican state Senators — Tory Rocca from Sterling Heights, Tonya Schuitmaker from Lawton and Mike Nofs from Battle Creek — joined all Democrats in voting for two defeated amendments to spend $37.7 million more on two programs that had been trimmed in the recently passed 2012 budget. However, the same senators then voted “no” on the bill to keep the revenue flowing that would have paid for their extra spending.

In other words, these Republicans appear to want it both ways: Being able take credit for increasing certain spending programs, while reserving the right make fiscal conservative-sounding boasts about opposing the revenue source that pays for them.

The pattern is not new. In 2007, all three of these legislators opposed a $1.4 billion tax hike, but literally within hours of its passage voted to increase spending by almost that entire amount. Specifically, Rocca voted for every dollar of a $1.47 billion spending hike, Schuitmaker $1.09 billion of it, and Nofs $1.10 billion.

On the latest spending votes, Nofs told Capitol Confidential that he thought the proposed tax raises more than is needed for its purpose. However, he said that the “Healthy Michigan Fund” — one of the programs the amendments would have increased — “helps a lot of constituents in my district,” and that he wanted to “indicate my support” for both of the affected programs.

Two other Republicans, Sen. Geoff Hansen of Hart and Dave Hildebrand of Lowell, also voted “yes” for the “Healthy Michigan Fund” spending, but unlike Nofs, Rocca and Schuitmaker, also supported the underlying revenue source that would have paid for the spending. Back in 2007, after opposing the big tax hike then, Hansen had voted for $1.33 billion of the spending increases that it enabled, and Hildebrand for $121 million of it.

The votes this time all came on a bill lowering the rate of an existing health care services tax but broadening its base to a larger number of taxpayers. Importantly, it is supposed to be a tax shift, not a net tax hike, although some firms not now paying the tax would have to in the future.

This medical services or claims tax itself is a “gimmick” used to extract more federal Medicaid dollars, taking advantage of a quirk in the federal/state cost-sharing formulas to “game” the system in favor of Michigan taxpayers and medical welfare recipients. Proponents say that without this extra revenue, the net cost paid by Michigan residents for health care in general would go up.

One of the two programs these Republicans tried to spend more on provides subsidies for medical education graduate students. The other, the so-called “Healthy Michigan Fund,” pays for a variety of government prevention programs, with much of the money targeted at low-income populations in Detroit and elsewhere. It has been a target of GOP budget-cutters for a number of years.

In addition to backsliding on already adopted spending cuts, this extra spending potentially could have turned a revenue-neutral tax shift into modest tax hike. The details are complicated, and involve which spending can or cannot be used to “game” more federal dollars. Essentially, the amendments would have meant that a net tax increase might be needed to get the same federal money “bang for the buck” from the gimmicky medical services tax.

Besides the three senators who supported both of the spending amendments described above, four other Republicans opposed this tax shift bill: Jack Brandenburg of Harrison Township, Joe Hune of Hamburg Township, Rick Jones of Grand Ledge and Pat Colbeck of Canton Township. Colbeck wasn’t in office in 2007, but the other three all voted for spending increases following that year’s big tax hike: Brandenburg supported $349 million of that extra spending, Hune just $7.5 million, and Jones $410 million.

In addition to the GOP politician behavior revealed by the most recent votes described here, the episode also reveals some of the negative fiscal effects of Medicaid, the joint state/federal health care welfare program for the poor. Among other things, the program has been called the monster that ate state budgets for the way it has expanded year after year, crowding out other state spending priorities. The gimmicky tax described here is one of the methods state legislators have used to mitigate the drain on state budgets.

The fact that Michigan gets nearly $2 from the feds for every $1 that state government spends also makes Medicaid an “attractive nuisance” to big-spending legislators, creating an incentive to expand social welfare spending even in an environment of budget austerity. Every time there’s an effort to trim this spending the call goes up, “Why would you want to leave that federal money lying on the table?”

One solution would be to get rid of Medicaid's federal matching funds with a fixed block grant to each state. This reform is one of the features of a multi-state Health Care Compact recently introduced in the House, the main purpose of which would be to insulate Michigan from the worst effects of “Obamacare.”