… 42 states tax hospitals. Why? One answer is the perverse incentives built into the Medicaid law. When a state returns tax money to hospitals through Medicaid “supplemental payments,” it qualifies for matching funds from Washington. Connecticut hospitals will pay $900 million in taxes, but the state will offset that with $600 million in supplemental Medicaid payments—matched with $450 million of federal funds, meaning Hartford comes out ahead in the whole scheme by $750 million. Nice work if you can get it.
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As Jahncke closes his essay by suggesting, if government wants to do this, it should be straightforward about it. The problem is that, increasingly, the business model of government is to seek people to whom to provide benefits or services and then find ways to make taxpayers at all levels of government pay for it. If the wealth transfer were more obvious, then the people paying the bill would more quickly decline to do so, especially for those portions funded across state lines by the federal government.