Some big-government activists are working hard to raise taxes to help pay for a permanent expansion of Montana’s Medicaid program under President Obama’s signature health care law, the Affordable Care Act (ACA). These people are hoping to deceive voters into believing that a ballot measure to hike taxes on tobacco products is a fiscally responsible way to fund social programs. Voters should not fall for their gimmicks or empty promises. If voters approve Initiative 185, it will fail to generate the desired revenue and leave every Montana taxpayer to foot the bill.
The ballot measure in question is I-185, a proposal to raise the tax levied on all “tobacco products.” These include cigarettes and cigars as well as electronic cigarettes and vaping products. With the $74 million in revenue the state is estimating to generate, about $26 million would be allocated to cover the projected $60 million cost of Medicaid expansion. More than half of the $74 million will be sent to the general fund. That leaves a Medicaid shortfall of about $34 million, which will have to be paid for by all taxpayers, not just tobacco users. Needless to say, I-185 is a bad deal that threatens the future prosperity of Montana.
Proponents of I-185 are trying to convince voters that Medicaid expansion will be a boon for the state and the economy. But this fiscally irresponsible measure will leave the state on the hook for millions in unfunded mandates, reduce the quality of care, increase the role of government in people’s day to day lives, and grow the likelihood of future tax increases.
Partially funding a massive Medicaid expansion with revenue from so-called “sin” taxes ignores economic reality. As we have seen time and again, states that increase tobacco taxes experience a temporary boost in revenue, but then followed by a precipitous drop in tax collections in the subsequent years. As the cost of health care is expected to gradually increase, an eventual drop in tax collections would create a growing gap between revenues and expenditures.
To grapple with the spiraling costs, lawmakers would need to make serious choices about priorities in the budget. Such a scenario could force spending cuts to important areas like education or infrastructure, raise taxes on other taxpayers, or a combination of both.
Voters should be aware that many states across the country are already regretting their decision to expand Medicaid, as they experience the budgetary pain associated with it. Report after report finds that enrollment in Medicaid expansion states is far higher than projected - like here in Montana, where the state projected only 45,000 people would enroll by 2020, but by the end of 2017, 91,000 had enrolled. As a result of higher than expected enrollment, the state has faced higher-than-expected costs for the program.
Voters must also be aware that policy developments out of Washington, D.C. could have a huge impact on the funding of Medicaid. Under the ACA, the federal government initially covered every state’s cost of expanding Medicaid, but in 2020 the federal portion will be reduced to 90 percent, greatly increasing the state responsibility. With higher-than-expected enrollment, states would be on the hook for higher-than expected costs as the federal portion of the funding drops. President Trump and congressional leaders have also stated their intention to repeal and replace the ACA, which could further reduce the federal government’s contribution. If that happens, it would blow a hole in the state budget.
The uncertainty from Washington should make voters wary of Medicaid expansion. While we don’t know what exact path our federal policymakers will take, we can confidently predict that a permanent expansion here in Montana will be a bad deal for taxpayers, the economy, and state finances. Therefore, voters should tread carefully on I-185 and its misguided tax and spend policies when they go to the polls on election day.