On Friday, Massachusetts Democratic Senator and Presidental candidate Elizabeth Warren released her plan for a massive Medicare for All system. Warren, who’s running on a message that she’s got a policy proposal for everything, claims her $52 trillion over the next 10-years proposal will not require tax hikes on the middle class.
Medicare and Medicaid already cost the American taxpayers over $1.3 trillion a year and comprise over 1/3 of the $4.4 trillion federal budget.
According to the National Review, “the proposal would be funded by roughly $20 trillion in taxes on employers, financial transactions, and super-wealthy corporations over the next decade. Existing federal and state spending would account for the remaining $30 trillion in costs.” With an already massive trillion-dollar deficit in federal spending, the question remains on whether Warren plans on addressing this revenue shortfall in her tax plan. The $20 trillion in new taxes, or roughly $2 trillion per year, would be on top of current spending.
On the subject of who will pay these new taxes, Warren wrote, “we don’t need to raise taxes on the middle class by one penny to finance Medicare for All.” She adds, “when fully implemented, my approach to Medicare for All would mark one of the greatest federal expansions of middle-class wealth in our history. And if Medicare for All can be financed without any new taxes on the middle class, and instead by asking giant corporations, the wealthy, and the well-connected to pay their fair share, that’s exactly what we should do.”
Warren received backlash from democrats and republicans alike when she refused to answer during debates whether he plan would include new taxes on the middle class. Instead of opting for a direct answer, Warren would comment on overall costs going down.
A health care expert at Emory University told the Washington Post, “there’s no question” a Medicare-for-all plan “hits the middle class” in some way.
Aside from the cost issues, Warren did appear to acknowledge this week that Medicare-for-all could result in substantial job losses, calling it “part of the cost issue” when confronted with an estimate that nearly 2 million jobs could be shed.Fox News
However, despite Warren’s claims of no new taxes on the middle class, a new study by a nonpartisan budgetary watchdog group, Committee for a Responsible Federal Budget, says that plan is impossible. The group ran several scenarios with different means of paying the hefty bill by solely taxing the rich to no prevail.
The plans tested were:
- A 32 percent payroll tax – This doubles the current payroll tax, and be split between both employers and employees of all income brackets. The $132,000 income cap for payroll tax would be eliminated. “A 32 percent payroll tax would raise the total payroll tax rate on most wage income to above 47 percent.”
- A 25 percent income surtax – This plan adds a 25% tax to all income before deductions are applied. ” This surtax would effectively increase the bottom income tax rate from 10 to 35 percent, the top income tax rate from 37 to 62 percent, and the top capital gains and dividends rate from 24 to 49 percent.”
- A 42 percent value-added tax (VAT)
- A mandatory public premium averaging $7,500 per capita – the equivalent of $12,000 per individual not otherwise on public insurance
- More than doubling all individual and corporate income tax rates – The top bracket for income tax would climb to 76%, corporate income tax would rise to 42%, and the capital gains tax would rise to 47.6%
- An 80 percent reduction in non-health federal spending
- A 108 percent of Gross Domestic Product (GDP) increase in the national debt – If Medicare for All spending were not paid with new taxes, the national debt would be twice that of the GDP.
- Impossibly high taxes on high earners, corporations, and the financial sector – “There is not enough annual income available among higher earners to finance the full cost of Medicare for All.” A 100% tax on all income over $204,000 would not be enough to fund the entirety of the program.
- A combination of approaches
“Each of these choices would have consequences for the distribution of income, growth in the economy, and ability to raise new revenue,” the study concluded. Though the consequences could be reduced “by substantially scaling back the generosity or comprehensiveness of Medicare for All.”
Most of the options we present would shrink the economy compared to the current system. The 32 percent payroll tax hike, for example, would increase the effective marginal tax rate on labor by about 23 percent after accounting for various interactions. Penn Wharton Budget Model recently estimated that an 11.25 percent payroll tax increase used to pay for a Universal Basic Income (UBI) would reduce GDP by 1.7 percent. This suggests that financing Medicare for All with a payroll tax would shrink the size of the economy by about 3.5 percent by 2030 – though the actual effect may differ. This economic impact would be the equivalent of a $3,200 reduction in per-person income and would result in a 6.5 percent reduction in hours worked – a 9 million person reduction in full-time equivalent (FTE) workers in 2030.Committee for a Responsible Federal Budget
Though every person may be covered, the real cost to GDP would be astronomical. If the spending were paid for via the payroll tax, GDP would take a 3.5% hit over the next 10-years, or nearly 2-years worth of stagnation based on current trends. financing it through debt would be even worse, causing a 5% loss in real GDP. Hours across the board would decrease by 6.5% under the direct payroll tax to add insult to injury.