Schaeffer: Tooth Fairy Government: Bringing Medicaid expansion to a town near you

“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.”
― Thomas Sowell, Knowledge And Decisions

A long, long time ago, in a place far, far away known as America, virtually all public assistance (as we knew welfare in those times) was implemented at the municipal government level.  Local residents could know of the details, put names and faces to the recipients, and have a good sense of the purpose and implications of the program.  Assistance was understood to be temporary, not a life style choice.  Publicly funded benefits were seen as backing up the primary sources of assistance: individuals, families, churches, and charities.

Since those days, largely thanks to the War on Poverty, this scheme has been completely reversed.  Virtually all assistance is implemented at state and federal levels; municipal participation is negligible.  The average citizen has completely lost touch with the specifics, and cannot put names and faces to the recipients.  In fact, the tens if not hundreds of entitlement programs emphasize shielding recipients from public awareness to protect privacy and dignity, so that the life-style is not stigmatized.   Witness EBT cards that replaced food-stamps, and are indistinguishable from debit and credit cards, and can be used at ATMs.

As a direct consequence, the scope, scale, purpose, and consequences of these programs is lost on the average citizen.  Even worse, society has fully embraced the belief that government, however you conceive of it, has the primary obligation for assistance, virtually dismissing the role of individuals, families, churches, and charities in caring for the needy.  And in the process, redefining ‘life-styles’ and the societal understanding of what ‘needy’ means.  As someone said, ‘we went to war on poverty, and poverty won.’

This transition has resulted in states being seen primarily as social service agencies that have some secondary tasks like caring for roads, etc.  And the federal government is seen as the great benefactor who should ‘pay for’ the lion’s share of the huge national burden of such programs.  The perception of the masses is that both state and federal governments have ‘their’ revenues, which are magically accumulated through bureaucratic alchemy, and which are distinct from the personal resources of the governed.  Paying for entitlements becomes a public policy abstraction that is dangerously disconnected from private economic reality.

As proof, look to the recent discussions and hearings on Medicaid expansion here in Maine.  Not once did opinion writers or testifiers talk of “taxpayer money.”  Instead, it is always described as ‘state’ or ‘federal’ money.  Unsustainable growth in entitlements is seen as an intangible concept with no metrics that an informed individual can grasp, like a phone bill or electric bill. There is a remarkable disconnect between these distant ‘revenues’ and the individual’s grasp of personal economic reality.

The unsustainability of rampant entitlement growth is somehow unfathomable, or so inconvenient as to be suppressed by more comfortable and altruistic thoughts.  Or in many troubling cases, the rhetoric is self-serving in that it directly benefits the employment of the advocate and the non-profit industrial complex.

This is the same phenomenon that leads to a belief that ‘corporations should pay higher taxes.’  In the same way believers fail to grasp that government money only comes by being taken from someone somewhere else in the economy, they fail to see that corporations don’t pay taxes.  They simply collect them from customers on behalf of government.

We see arguments that expanding Medicaid will bring new dollars to the Maine economy; here’s a quote by Dan Demeritt, a political consultant:

“In many rural parts of the state, the health care industry remains the biggest employer, or one of the biggest employers,” Demeritt said. “There are people with critical needs, so if there is an opportunity to inject additional spending into those industries, Republicans from rural parts of Maine have to consider the potential upside for their districts.”

How many times do we have to be told that governments cannot ‘inject’ new money into the economy that it didn’t first ‘extract’ from the economy, and applied a sizable overhead charge, or even worse, created out of thin air by printing or borrowing it?  Otherwise sane adults, who would argue vociferously against the existence of The Tooth Fairy and Santa Claus, have no compunction about seeing them in government and suggesting we ‘just believe.’  Or stop by for a regular free lunch, if you prefer.

As T.S. Eliot said, more than fifty years ago: “Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm — but the harm does not interest them.  Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.”

I can say without fear of contradiction, I think, that if we handled our personal finances the same way governments do, we’d all be bankrupt.  But not to worry; government can take care of us when we sink into default.  They can, can’t they?

In so many words, we’ve come to the point where the prevailing illusion is that welfare is paid for by ‘government,’ not by you and me and the neighbor.  Ronald Reagan said one of the biggest mistakes he made as Governor of California was to agree to the withholding of state income tax from paychecks.  That change began the desensitizing of the average citizen from the scale, cost, and growth of state government, and anyone who has lived through such a change knows how true it is.  Having your property taxes impounded with your mortgage payment has the same numbing effect.

I think it’s time to reverse this disconnect, and have a thought on how to go about it.  Following the old saw that ‘all politics is local,’ I think it’s time to understand entitlement politics in the local sense.  Simply put, individual taxpayers need to get more skin in the game.  So as a hypothetical exercise, let’s examine what Medicaid would cost if it was a municipal program.

A Case Study: Brunswick

I live in Brunswick, a town full of social and economic justice advocates and “99 percenters.”  Support for any and all increases in local and state spending, especially as it relates to schools, is near automatic.  We’re home to Bowdoin College, which while exempt from most taxation, is the high-minded oracle for more forms of justice than you can count.

In round numbers, the town has a population of 20,000, and an annual budget of $57.4 million to cover municipal, school department, and county expenses.  Town property tax revenue in the current year is $35.6 million, and the ‘mil rate’ is 26.54.

For illustration, let’s look at two typical Brunswick residential taxpayers: Chris, whose home is appraised at $140,000, and Pat, whose home is appraised at $280,000, both after any applicable exemptions.  This year, Chris is paying $3,716 in annual property taxes, and Pat is paying $7,432.  This equates to roughly $71.50 and $143 per week respectively.  Or $310 and $620 monthly to their impound accounts.

In 2012, Maine had 338,000 people on Medicaid.  If that was pro-rated to Brunswick, 5,200  residents would be on the program.  The average annual cost of each Medicaid client is $8,000, inclusive of state and federal funds.  That means the 5,200 Brunswick residents cost $41.6 million to fund.  Paying for this locally would bump the property tax revenue commitment to $77.2 million, an increase of 117%, necessitating an increase in the mil rate to 57.55.  That would mean Chris would have to pay $8,057 annually in property taxes, and Pat would have to pay $16,114.   This equates to $155 and $310 per week respectively.

We’re told over and over that ‘15% of the population (3000 in Brunswick) does not have access to health care,’ which is the fancy way of saying they are not insured by a third party.  On a Brunswick pro-rata basis, the proposal to enroll 70,000 more in Maine would add 1,070 more residents to the local tab, for a total of 6,270.  This would add another $8.6 million to property tax demand, for a total of $85.8 million, another 11% increase, upping the mil rate to 63.96.  Chris would now owe $8,955 in annual property taxes, and Pat would be on the hook for $17,909.  They’d have to set aside $172 and $344 a week respectively to cover their property tax bills.

Now, let’s take the big plunge.  In our example so far, we still have 1,930 residents who are ‘uninsured.’  We have no trouble believing that the elite caring class in Brunswick, including the entirety of the Bowdoin family, would support adding all of these uncovered to the system.  This would only cost another $15.4 million, short money relatively speaking after the other increases.  We’d now need to collect $101.2 million annually in property taxes, nearly triple what we currently take in.  The mil rate would increase to 75.45.  Chris would be paying $10,562 in yearly property taxes, and Pat would be chipping in to the tune of $21,126.  We hope they’re disciplined enough to set aside the $203 and $406 weekly this would require.  (Or the $880 and $1760 monthly their impound accounts would demand, respectively.)

While Chris would now be paying $6,846 more in property taxes, and Pat would be paying $13,694 more, they’d have the satisfaction of knowing they were doing the right thing and paying their ‘fair share.’  If only for the Medicaid portion of ‘government’ obligations.  Imagine how much more satisfaction they could know if they paid for all the other welfare programs and education costs through their local tax bills.  The point, of course, is that all but the most detached and delusional would be hard pressed to ignore the realities of the entitlement society if the costs had to be paid locally and were billed to them monthly.  With the added incentive of losing their homes if they didn’t pay.

You can do the same analysis for your town in a matter of minutes.  All you need to begin is the total annual property tax revenue and the mil-rate.  Everything else is a matter of doing some easy pro-rata calculations, and extrapolation of tax revenue and tax rates.

If this doesn’t help bring home the personal cost of funding ‘government’ programs, I don’t know what will.

The reaction of many, no doubt, will be to point out that if Medicaid were funded via local property taxes, we should all save in equal measure through reductions in state and federal income tax obligations.  Oh ye of little understanding.

While this seems logical on its face, this is exactly the kind of delusional thinking that has taken us to the unsustainable level we are on.  Government is not logical, plain and simple.  At the federal level, roughly 40% of what we are spending is revenue ‘they’ don’t have; we’re simply printing and borrowing currency.  So expecting any cut in income taxes is absurd.  At the state level, spending appetites are so voracious that any ‘cut’ in spending would immediately be seen as a ‘windfall’ to be spent on ‘vital’ new and compelling programs.

Just like windfall revenue increases in the 90’s were used to expand government, rather than lower taxes.  Like the scorpion told the turtle, ‘it’s in my nature.’

Here in Brunswick, those especially given to excursions on the imaginary axis might suggest that Bowdoin College would fore-go a huge portion of its property tax exemption to demonstrate a tangible commitment to social justice, rather than a shallow academic endorsement to it.   If you believe that, I’ve got an Easter Bunny I’ll sell you, dressed in Santa Claus garb.

Pem Schaeffer is a retired Business Development Leader who spent his career in defense related high technology.  He blogs at The Other Side of Brunswick.  Contact him at pemster4062@yahoo.com.  Or, if you prefer, buy his lunch at the next MHPC event in Portland.