"Watch the Nice Hand; don't worry about what the Naughty Hand is doing:
Under the "Cornhusker Kickback," the federal government will pay all of Nebraska's new Medicaid costs forever, while taxpayers in the other 49 states will see their budgets explode as this safety-net program for the poor is expanded to one out of every five Americans.
Obviously Congress treats different states differently all the time, via earmarks and the like, but in this case there is simply no plausible argument for some kind of "general" benefit. The only state that gains from special treatment for Nebraska is Nebraska—and this actively harms all other states, which will have fewer tax dollars for their own priorities while effectively subsidizing the Cornhusker state.
The reality is that national taxpayers have subsidized New York and California's social services for years because Medicaid's funding formula rewards higher state spending. That spending helps explain why these two states, plus New Jersey, are in such budget fixes today. But we welcome Mr. Paterson's discovery that redistributing income via progressive taxation is harmful.