Is Medicaid Expansion Worth an Income Tax?

Happy New Year, taxpayers!

If you live in Wyoming you are probably very happy not to have to pay income taxes. Make the most of it for now - you never know when the state may find itself at a point where it needs to introduce a personal income tax.

Actually, strike that. We can foresee the income tax with fairly good accuracy.

Let me first stress that the threat of an income tax is not acute - as of today there are no credible proposals for that tax to be revived right now (it exists in our state tax code, its rate is just set to zero). But indirectly there is a perfect storm of government budget problems colliding in the skies just ahead of us. A storm that will very likely pave the way for a state income tax.

The state government is rapidly heading for a budget shortfall. It will soon experience how severance taxes stop growing and instead flatten out. This was pointed out already in the CREG report in October. Since then oil prices have dropped dramatically; given that oil production is responsible for roughly one quarter of the state's severance tax revenue, the global oil price trend presents our state lawmakers with an immediate budget problem. It would be shocking if the January CREG report did not reinforce the tax-revenue warning from three months ago.

At the federal level, things look even worse. The deficit, which is currently declining, was an estimated $648 billion in 2014. In four years, 2019, the deficit will begin to increase again, probably reaching the trillion-dollar mark in 2023.

What's worse: the debt is now so costly that it is crowding out major spending programs. Today, interest rate spending consumes every penny the federal government gets from excise taxes and from corporate income taxes - and keep in mind that the United States has one of the highest corporate income tax rates in the free world.

We spend three times as much on interest on our federal debt than we do on benefits and services for our veterans.

From now through 2019 the cost of interest payments on the federal debt will increase by 12.5 percent. Per year.

In two short years, 2017, we will be spending more on interest on our federal debt than on our national defense.

And these projections do not take into account the effects of sharp interest rate increases as the Federal Reserve ends its QE program.

Put bluntly: we are already now at the gates of a major federal fiscal crisis.

With all this in mind, our state lawmakers are planning to expand Medicaid. Relying on a promise from Uncle Sam of $100-120 million per year in new federal funds - on top of what we already get from Washington - our legislators are ready to lure an estimated 17,600 Wyomingites into dependency on government for their health insurance. Incredulously, our elected officials in the state capitol believe that the federal government is going to continue to fund 90-100 percent of Medicaid Expansion for the foreseeable future - and every other program it has promised to pay for.

Hands up everyone who believes that our state government can:

a) trust the federal government with funding Medicaid Expansion until the next Big Bang;

b) take over payments for Medicaid Expansion in case the federal government decides to become fiscally responsible; and

c) can do all this without introducing a state personal income tax within the next five years.