The Nebraska Compromise and California Killer

Following Senator Nelson’s infamous “Nebraska Compromise“, which forces the other 49 states to pay for Nebraska’s new Medicaid recipients, journalists, legislators, and citizens have lashed out for what has been labeled a “sleazy back-room deal” by many folks across the political spectrum. The heat of the anger towards ex-Governor Nelson comes from an innate sense of fairness; why should the rest of the country pay for the increased health care cost of Nebraska?

While the anger is newfound, State-to-State subsidization is nothing new. And if you’re from California, you’ve been buying lunch for the rest of the country for a long time. California, through its federally mandated charity, gives anywhere from $50-$100 billion dollars a year to our friends in Washington D.C. that never comes back. To put this in perspective, California’s entire budget is only $100 billion.  And we wonder why California is in financial trouble.

What California should do is demand a repeal of Alternative Minimum Income Tax (AMT) which disallows Californians to make deductions on their taxes to compensate for our higher cost of living. Abolishing the AMT alone would reduce our massive donation to the rest of the nation by a whopping 75%. That would be enough money to eliminate the state deficit and still cut taxes for Californians!

What California should do is follow the example of ex-Governor Nelson of Nebraska who is pressuring feds to pay for federal mandates through the health care negotiations. He is a much smarter guy than observers are giving him credit for; he is using the health care bill to force the feds to confront UNFUNDED FEDERAL MANDATES. He knew his “Nebraska” amendment would cause a firestorm. That’s what he wanted. The only way Congress can “score” their health care expansion as “revenue neutral” or as a cost saving to the federal budget is to mandate the costs onto the states.

Note following quote from the Wall Street Journal:

“Under President Clinton, we got 94 cents back on every dollar we sent,” said gubernatorial spokesman Aaron McLear, citing data compiled by the nonpartisan Tax Foundation. “Now it’s 78 cents on every dollar. It makes no sense that California should be subsidizing programs in other states.”

This is TRUE. And it is 75% the result of AMT. The other 25% is the federally mandated ABC — “Anybody But California”.