Some legislators are considering the possibility of eliminating the state’s earned income tax credit in exchange for expanding its Medicaid program.
“That’s being shopped around, big time,” said Sen. Laura Kelly, a Topeka Democrat.
“There’s been discussion of that, yes,” said Rep. Don Hill, an Emporia Republican.
Kelly and Hill, who serve on their respective chambers’ health and budget committees, declined to say which legislators are promoting the would-be deal.
“What’s being said is that there might be an opportunity for it to be used as a lever when things get to a point of having to get some people to vote for something they wouldn’t vote for otherwise,” Hill said.
In recent weeks, legislators have intensified efforts to come up with more than $400 million needed to balance the state’s budget for the fiscal year that begins July 1. The Kansas Constitution prohibits the state from spending more than it expects to collect in revenue.
Most conservatives in the Legislature favor reducing or eliminating the state’s earned income tax credit but oppose expanded eligibility for Medicaid, which was part of the Affordable Care Act. Kansas is one of 21 states that have not expanded Medicaid coverage to more low-income residents.
Conversely, most moderates and liberals favor Medicaid expansion and support the earned income tax credit. Conservatives control the House and Senate leadership offices.
Throughout this year’s legislative session, the Kansas Hospital Association has urged legislators to expand Medicaid, saying that it would close a gap in the Affordable Care Act that blocks an estimated 85,000 uninsured Kansans from being eligible for Medicaid or receiving federal subsidies for offsetting the cost of private insurance.
Medicaid expansion also would benefit the state’s economy and provide relief for some struggling rural hospitals, according to the hospital association.
Chad Austin, a senior vice president with the hospital association, confirmed that the organization has been asked to weigh in on a proposal to approve Medicaid expansion in exchange for reducing or eliminating the state’s earned income tax credit, also known as the EITC.
“I would not say that we’re in a position of supporting that proposal at this point in time,” Austin said. “We are in the fact-finding stage to better understand it as a public policy and how it impacts the low-income population. We are very supportive of EITC. We think it’s been a very important program for the state of Kansas. We also think it’s very important for us to move forward on Medicaid expansion as well.”
Austin declined to identify the legislators who are crafting the proposal. “How far will this go?” he asked. “I don’t think anybody knows.”
Doubts about federal funding
Expansion would make all Kansans with incomes up to 138 percent of the federal poverty level eligible for Medicaid: For 2015 that’s annual income of $16,105 for an individual and $32,913 for a family of four.
The federal government will cover all costs of expansion through 2016. After that, states will be responsible for no more than 10 percent of the cost and the federal government will pay the remainder.
Lawmakers and other state officials who oppose Medicaid expansion — a group that includes Gov. Sam Brownback — have cited doubts that the federal government will be able to follow through on its commitment to fully fund expansion in its early years and then fund 90 percent of the costs going forward.
In recent years, legislators have voted to eliminate tax credits that helped low-income families partially offset the costs of child care, food purchases and rent. Efforts to cut the state’s earned income tax credit stalled in 2012 and 2013 before resurfacing this year.
“When it comes to lifting Kansas families and Kansas kids out of poverty, the earned income tax credit is the last tool in the state’s tax-policy tool belt,” said Annie McKay, executive director of the Kansas Center for Economic Growth, a nonpartisan think tank formed as a counter to conservative groups that lobby for lower taxes and smaller government.
In Kansas, the state’s earned income tax credit is 17 percent of the federal tax credit for low- and modest-income workers.
State records, McKay said, show that more than 200,000 Kansas households benefited from the state’s earned income tax credit last year. The payments totaled $69.1 million, or an average of about $350 per household.
‘An idea … running around in the hallways’
Rep. Marvin Kleeb, an Overland Park Republican and chairman of the House Committee on Taxation, said he also had heard discussion of swapping Medicaid expansion for reducing or eliminating the earned income tax credit.
“The idea has been talked about for the last couple of months,” he said. “With the EITC, I think there’s always been a discussion about how do we get the most value out of the investment for those it’s trying to help.”
Those discussions, he said, have not involved the tax committee. “It’s an idea that is running around in the hallways,” he said. “It’s not part of the tax solution.”
Sen. Les Donovan, a Wichita Republican and chairman of the Senate Committee on Assessment and Taxation, said he’d not heard about the trade but was aware that many senators consider the earned income tax credit overly generous.
Earlier this year, Donovan said, his committee considered but did not adopt a bill that would have reduced the 17 percent earned income tax credit to 8 percent.
“I knew it wouldn’t go that low,” he said. “But 10 or 12 percent? Maybe.”
The committee’s deliberations, he said, were complicated by a warning from Shawn Sullivan, the state’s budget director, that cutting the tax credit could jeopardize the state’s federally funded Temporary Assistance for Needy Families block grant — about $102 million a year — because the tax credits are considered part of the grant’s required “maintenance of effort.”
Democrats are expected to oppose pitting the tax credit against Medicaid expansion.
“It’s just a bad idea,” said Rep. Tom Sawyer, a Wichita Democrat and ranking minority member on the tax committee. “The earned income tax credit is very important for working families. It’s something that even Ronald Reagan supported. It encourages people to work. It makes sure that getting a job is worthwhile, that payroll taxes don’t completely eat it up.”
Sawyer said he found it interesting that the rumored trade assumes that Medicaid shouldn’t be expanded without low-income families giving up something in return.
“If this were a tax break for business, they (conservatives) wouldn’t think twice about it,” he said. “But if you’re struggling paycheck to paycheck? ‘No, you can’t have both.’”