Rewarding those states for supporting failed policies while citizens in better-managed states are effectively penalized is an odd policy. But supporters of Medicaid expansion don't mention the state-and-local tax break for the same reason they tout the Medicaid expansion: Both policies encourage government growth.
Critics are also off base with their tax-diversion critique of Fallin's decision. Because the federal government depends substantially on deficit spending, Fallin's rejection of Medicaid expansion effectively means the federal debt will be lower, not that local citizens' federal taxes will go elsewhere. Those tax payments were spent long before Oklahomans mailed a penny to the IRS.