Sen. Elizabeth Warren, D-Mass., has released her plan for financing "Medicare-for-all." She claims it’ll cost "just" $20.5 trillion in new federal spending over 10 years, with, in her words, "not one penny in middle-class tax increases."
Warren has little choice but to indulge in fuzzy math. After all, doubling everyone's taxes or delivering a blow to the economy more severe than the Great Recession is no way to win an election.
Numerous policy wonks – from those at the Urban Institute, to Charles Blahous at the Mercatus Center, to Emory University economist Ken Thorpe – have pegged the cost of "Medicare-for-all" at more than $30 trillion over 10 years. Warren’s ideological fellow traveler Sen. Bernie Sanders, I-Vt., admits "Medicare-for-all" would run more than $30 trillion over a decade.
On Oct. 28, the nonpartisan Committee for a Responsible Federal Budget dove into how the federal government could possibly come up with $30 trillion.
First, the CRFB posited a new 32 percent payroll tax, on top of the existing 15.3 percent payroll tax. That would make the total payroll tax on most wage income more than 47 percent. Payroll tax hikes of that size would contract the U.S. economy by 3.5 percent – the equivalent of a $3,200 pay cut for the average American, on top of all those new taxes.
Not a fan of a 47 percent tax on each and every job? How about a new 25 percent income surtax above the level of the standard deduction – $12,200 for individuals and $24,400 for married couples? The bottom tax rate would jump from 10 percent to 35 percent; the top tax rate would surge to 62 percent. Capital gains and dividends would be subject to a tax rate of nearly 50 percent.
We could also just double individual and corporate income tax rates to come up with the $30 trillion "Medicare-for-all" requires over 10 years. The bottom rate would go to 20 percent; the top rate, to 74 percent. The federal government would claim nearly 48 percent of capital gains. Corporations would pay 42 percent of their income to the federal Treasury – almost 20 percentage points more than the Organisation for Economic Co-operation and Development (OECD) average.
Or we could go the way of Europe and Canada and adopt a value-added tax. The CRFB projects that a 42 percent VAT would raise the necessary $30 trillion over 10 years. Think of it as a hefty sales tax – the VAT would immediately increase the prices of most goods and services 42 percent.
What if we adopt the framing of Sanders and Warren – and assume the premiums we pay to private insurers would simply become taxes under "Medicare-for-all"? The CRFB estimates that these mandatory premiums would have to average $7,500 per person – or $12,000 per person not currently on public insurance. They’d have to be even higher for families – $20,000 per household, by the CRFB’s reckoning.
The CRFB also modeled how much spending the federal government would have to cut elsewhere to free up $30 trillion over 10 years. The answer? Eighty percent. "Cuts of this magnitude are unrealistically large and certainly could not be imposed on a short timeline," the CRFB said.
Yes, it's safe for the CRFB to say that trimming Social Security benefits from $18,000 to $3,600 a year, or reducing military headcount from 1.3 million to 270,000, is unrealistic.
Some advocates of "Medicare-for-all" argue we don't need to "pay" for it. Deficits don't matter, right?
That would more than double the national debt, to 205 percent of GDP – almost double the record debt level we faced after World War II. It would shrink the economy by 5 percent and reduce individual incomes an average of $4,500 by 2030.
Finally, there's the approach preferred by Sanders and Warren – soaking the rich. The CRFB estimates that hiking the top tax rate to 70 percent, phasing out tax breaks for high earners, doubling the corporate tax rate, imposing a wealth tax, and taxing financial institutions would raise just one-third of "Medicare-for-all"'s $30 trillion 10-year price tag.
Even confiscating all income above $204,000 for individuals and $408,000 for couples would fail to cover the cost of "Medicare-for-all." And that’s without considering the fact that people would stop working after their incomes reached those thresholds.
None of the CRFB’s eight potential ways of paying for "Medicare-for-all" will ever gain the support of the American people. That’s why Warren has resorted to financial fantasy.