Tax Hikes on the Wealthy Alone Can’t Pay for ‘Medicare for All’
(Bloomberg) -- Thirty trillion dollars, even in U.S. budget terms, is a lot of money.
That’s the rough estimate from some analysts of the 10-year cost of Senator Bernie Sanders’ “Medicare for All” plan, just one of many expensive social programs that some of the 21 Democrats seeking to replace President Donald Trump have proposed.
To pay for those programs, the candidates have focused on taxing the rich. But many of the plans they’ve put on the table would require across-the-board tax increases that would hit middle-earners as well as the wealthy, public policy analysts say. None more than Medicare For All.
Raising the more than $30 trillion needed to fund Sanders’s health plan over a decade would require doubling all personal and corporate income taxes or tripling payroll taxes, which are split between employees and employers, said Marc Goldwein, a senior vice president at the non-partisan Committee for a Responsible Federal Budget.
“There is a lot of money out there, but there isn’t $30 trillion sitting around from high earners,” he said. “It just doesn’t exist.”
Sanders has backed the concept for years, and when he proposed similar legislation in 2013 it attracted no co-sponsors. But when he offered his Medicare for All legislation in April, 14 other Democratic senators signed on, including Kamala Harris, Cory Booker, Kirsten Gillibrand and Elizabeth Warren, four of his rivals for the Democratic nomination.
Still, many Democrats have balked at the price tag for Sanders’ proposal. The $3 trillion estimate annual cost for Sanders’ plan compares with the $582 billion cost for Medicare in fiscal 2018, and would be a substantial addition to the current federal budget of about $4.4 trillion.
Other Democrats, while generally favoring a way to provide universal health care coverage, are pursuing scaled-back versions, such as a “public option” that would allow people to buy into Medicare or Medicaid, but not do away with private insurance. Harris, Booker and Gillibrand also are co-sponsoring one of the alternative plans.
Warren has also touted public relief of college debt -- $1.25 trillion-- and subsidizing child care -- $700 billion, while former Representative Beto O’Rourke has proposed creating new programs to combat climate change for $5 trillion -- all while promising to lower middle-class taxes.
Democrats have defended the tax increases needed to pay for their plans by promising the brunt would be borne by top earners or that they’ll end up paying less overall than they do for those services currently.
“You’re going to pay more in taxes,” Sanders said at a CNN town hall last month. “But at the end of the day, the overwhelming majority of people are going to end up paying less for health care because they’re not paying premiums, co-payments and deductibles.”
Even though the government would have to increase payroll tax rates from the current 15.3 percent to about 45 percent to fund Medicare-for-All, the average family would see their tax burden increase about 2 percent to 3 percent, said Ernie Tedeschi, a managing director for research firm Evercore ISI. Payroll tax bills are split between employees and employers.
How to Pay
Sanders hasn’t yet said how he plans to pay for his proposal to transition to a government run system that covers hospital visits, primary care, prescription drugs, vision and dental. His plan offers benefits more generous than many receive from private insurance and those currently on Medicare.
In 2017, he released a paper that includes several options, including a wealth tax, a bank levy and having employers and employees pay premiums -- a cost he recently said people wouldn’t face under his plan. This list, however, only comes up with about $16.2 trillion worth of tax increases, half of what is needed.
The Congressional Budget Office says in a May report that of the $3.5 trillion spent on health care in 2017, slightly more than half came from public sources, including both federal, state and local funding.
The cost to provide health care for approximately 330 million people living in the U.S. comes to roughly $10,000 a person annually. But a middle-class family of four, for example, isn’t going to be expected to pay an extra $40,000, making the financing politically challenging, said Chuck Blahous, a senior research strategist at the conservative Mercatus Center.
‘Ugly and Unrealistic’
“It seems unlikely that every person in America will have to pony up $10,000,” he said.“The funding options look ugly and unrealistic.”
Sanders is not alone in shying away from campaigning on big tax increases. Several of his Democratic rivals have proposed plans with price tags that extend into the trillions of dollars that don’t advertise where the money is coming from to pay for them.
O’Rourke has a $5 trillion plan to reach net-zero emissions in the next 30 years to be funded by unspecified tax increases on corporations and the wealthy. Harris has proposed to repeal the entire 2017 Republican tax law and replace it with a $2.8 trillion plan to direct refundable tax credits to low and middle income families.
Warren has taken the opposite tactic. She’s proposed two large new levies -- an annual wealth tax on households worth at least $50 billion and a 7 percent corporate surtax on companies with more than $100 million in profits. She says those new taxes will pay to make child care universally accessible and to eliminate college debt for millions of Americans.
However, those programs cost a fraction of what a large health care overhaul would amount to. The money is out there, but it can’t come from just the wealthy, Tedeschi said.
“Raising the amount of revenue for these programs is a surmountable challenge. The key here is figuring out what the distribution of the burden is going to be,” Tedeschi said. “It’s not going to be easy or cheap to transfer it from the private sector pocket to the public sector one.”
©2019 Bloomberg L.P.