Wisconsin’s Biggest Use Tax is Hidden in Governor Walker’s Budget.

tax guy[IMPORTANT UPDATE TO THIS ARTICLE – PLEASE TAKE A LOOK AT THE POST HERE TO READ ABOUT SOME NEW DEVELOPMENTS THAT MAY AFFECT ISSUES I WROTE ABOUT IN THE ARTICLE BELOW!]

Did you know that the Governor’s budget for 2013-2015 contained a secret tax estimated to produce 10 million dollars over the next two years?  Would it surprise you to learn that the tax rate on this “use” tax was not 5% or .5% or even 6%, but instead was 100%? That’s right, it is a dollar for dollar use tax. For every dollar someone uses in Medicaid when they are in a nursing home, they will have to pay it back when they die, or when their spouse dies. Act 20, which is the 2013 Biennial Budget for the State of Wisconsin, substantially expands estate recovery for the Medicaid program. This is the tax I am talking about. It is in the most classic sense a “use” tax on people who get Medicaid.

The irony of this “use” tax is that the people who are being forced to pay it – primarily senior citizens – have worked hard all their lives and are now facing long term care due to dementia, stroke or other illness. During their long working lives, these people have paid their tax dollars in income tax, property tax and sales tax.  They have already paid for the long term care services they are receiving.  But they are being forced to pay out a second time because they had the audacity to actually use the services their tax dollars have funded. So really, it is a double tax. Where did those tax dollars go that they paid the first time around?

Well, it’s not called a tax. Is it a tax?

A tax is defined generally as a monetary burden imposed upon individuals or property owners to support the government. It is a payment exacted by legislative authority, not a voluntary payment or donation, but an enforced contribution. See Black’s Law Dictionary. “Excise taxes” or “use taxes”  are taxes paid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges. People who receive nursing home Medicaid, and certain other services, are now required to pay for having received this service. Payment is directly based on the service that was received, and therefore is based on use.

A tax doesn’t have to be called a tax to be a tax. We were reminded of this lesson very recently. It was noted on Page 33 of National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., a decision of the United States Supreme Court regarding the Affordable Care Act, which is more commonly known as the “Obamacare” decision (an annotated copy of which can be found here ,) an “essential feature of any tax is that it produces some revenue for the Government.” The Obamacare decision also went on to note that “exactions not labeled as taxes” can still be considered taxes if they meet the essential criteria of a tax. So does the Medicaid recovery fit in? Nobody in the Governor’s office would concede that this is a tax. Read on….

If it walks like a duck and quacks like a duck…..walks like a duck

“Projected Revenue.” That is what the Governor calls the funds that are scheduled to come in to the state treasury as a result of the estate recovery changes in the 2013 Biennial Budget. Governor Walker predicted that the estate recovery changes would raise over $10 million in projected revenue. The State intends to spend almost $2 million dollars in the next two years to ramp up staff to enforce this “Medicaid use tax” by adding 8.5 government positions to collect this revenue – basically they are tax collectors.( Source: Legislative Fiscal Bureau paper #324.) Their job will be to collect that $10 million dollars from the estates of people who received Medicaid.  The estate recovery expansion definitely meets the essential feature of generating revenue that the Supreme Court talked about in the Obamacare decision. It is projected to raise $10 million over the next two years.

Seems to me, it acts like a tax, raises revenue like a tax, and it is a tax. A whopping tax that is a hundred percent of whatever you have left when you die, until every penny of your Medicaid nursing home care is paid back. We have a variety of use taxes in Wisconsin, but none of them are at a 100% rate like estate recovery. This is by far the biggest one of all.

Some estate recovery is mandated by federal law, and we have had this in place in Wisconsin for years. But the expansions in this new law are all optional. They are not required by the federal government. They are the product of a deliberate choice by Governor Walker to increase the tax burden on senior citizens.

An interesting way to look at “use tax”

Recently, in a letter urging Joint Finance, the legislative committee responsible for approving the state’s plan to execute the estate recovery expansion, to rush into implementation of these new estate recovery provisions before any procedures have even been put into place, Department of Health Services (DHS) Secretary Kitty Rhoades stated: “It is not fair to have friends and neighbors pay taxes to finance a person’s long term care needs so that an inheritance can be left to others.” Sept. 4, 2013 letter from DHS Secretary Kitty Rhoades to Joint Finance Committee.

Well, that’s an interesting perspective. Evidently, according to the DHS secretary, friends and neighbors should not have to pay for another person’s government services. Let’s just set aside that point I made earlier – that the seniors in nursing homes have paid into the tax system for many many years, including funding for the Medicaid program, so this is something they already paid for themselves  – and let’s see how the Department’s philosophy might play out if it were applied fairly across the board.

  • My neighbor has three children. I just have one. But yet, we pay the same amount proportionately in school taxes. Shouldn’t my neighbor pay more? Is it fair that I should be forced to finance my neighbor’s kids’ education? Should I see a cut in my property taxes while my neighbor’s should go up? Or, maybe to follow Ms. Rhoade’s logic, we should hand each 12th grader a bill for their education. Heck those little ones have a whole lot more earning potential than we do. It’s not fair that friends and neighbors should have to pay for them.
  • Last year, there was a large residential fire in a nearby city, and fire trucks came from neighboring communities, including mine.  My tax dollars paid for that fire truck. Is it fair that the person whose house was burning gets to use the services I paid for? Perhaps they need to get the bill.
  • On my way to work yesterday, I watched as police kept traffic at a safe distance following an accident. Who got the bill for that?
  • The budget for the Governor’s Executive Residence is in the hundreds of thousands of dollars. But, I don’t get to live there, and neither do most of you. Is it fair that we should have to pay for his housing expenses? To follow the DHS’ thinking, we need to give the governor a bill when he moves out. It’s not fair to have friends and neighbors pay for his housing either.
  • Oh and hey, there are numerous individuals who die without ever using Medicaid. Isn’t it unfair to make them pay for what others have received? Shouldn’t their estates get a refund of the Medicaid share of the taxes they have paid all these years?

Every day, in many ways, each of us pays taxes to fund things we will never, ever benefit from personally or individually. We pay taxes that support government actions we do not agree with. And taxes to fund things we use every day. With very few exceptions, such as those aggravating toll roads, we do not have a “pay as you go society” when it comes to government services.  We pay as a collective taxed unit for the things our representatives have deemed important to the functioning of our society. Like Medicaid. And Fire Trucks. And Schools.

So why single out the most frail and vulnerable individuals in our communities, who never chose to be in need of long term care, to hit up with a 100% tax on what they received, when they die? And when they already paid for it during their productive lives?

Seems to me if that is how we are going to operate from here on out, we’d be a whole lot better taking it from those 12th graders… Sorry, Kids.

crying child

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About Carol J. Wessels

I am an Elder Law Attorney practicing in Wisconsin. I am the owner of Wessels Law Office LLC in Mequon, WI. I handle Medicaid, Long Term Care planning, special needs trusts, guardianship, advance directives, elder abuse and other related issues for elderly and disabled clients and their families. My Mother Velma suffers from Alzheimer's, which has given me a personal perspective on elder law issues as well.
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