The broken Medicare-for-all financing debate

Elizabeth Warren touched off yet another news cycle on Medicare-for-all last week when she released a detailed financing plan for how she would pay for the program. The basic idea is to soak the rich with a variety of special taxes, cut health care costs by squeezing providers, and then make up the difference by capturing slightly less than what employers currently spend on employer-based insurance. Thus she claimed that her plan would not raise taxes on anyone but the rich.

There are a lot of worthy elements to Warren's plan. But its badly-designed tax on employers, and the political calculations implied by that decision, reveal how very broken the Medicare-for-all discussion is in this country.

One underlying problem here is it is stupid governance to expect every single program to come with its own special pay-for. Every year, Congress authorizes a big slate of spending, the government collects a bunch of tax revenue, and then makes up the difference with borrowing. If we are to discuss tax revenue, it should be in the context of the entire budget, whether other programs (ahem) might be trimmed, how much it might cost to borrow money, and so on.

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"But how will you pay for it?" is not ever a good-faith question about responsible budgeting. It is only asked about new social programs — virtually nobody ever asks how we are going to pay for a casual $80 billion increase in the military budget, and Republicans easily bat away questions about gigantic tax cuts for the rich with utterly preposterous assertions that they will pay for themselves. The Bush tax cuts did not, and neither did Trump's.

The point of this question, whether the journalists who ask it over and over and over realize it or not, is to make it harder to pass social programs that benefit the non-rich by holding them to a double standard that requires a lot of unpopular talk about taxation. (And it is more than a little maddening that Democrats are constantly hazed by Jake Tapper about arcane tax details while Republicans get away with the policy equivalent of vomiting a stomach full of library paste onto the kindergarten teacher's dress.)

Indeed, as my colleague Jeff Spross points out, there is strong evidence that the economy is still far below potential maximum strength, and thus we could probably finance quite a lot of a universal Medicare program just through borrowing, at least at first.

Nevertheless, because Medicare-for-all would be such an enormous program, it is not totally out of line to imagine some financing options. Here Warren's team pretty clearly bent her plan for political reasons. The rich-focused taxes are fine, of course, but the employer ones are not. One of the many horrendous aspects of the health care status quo is how each employer has to pay for their own workforce individually, but people's health care needs do not just coincide with their level of pay. That means lower-paid workers have to dedicate more of their compensation to insurance to get decent coverage, or they just go without.

Warren would levy a new employer-side tax on workers that is 2 percent smaller than current spending on health care, which would entrench that unjust funding structure. It would effectively be a head tax, as Matt Bruenig argues, a policy charging employers a similar dollar amount for each employee — especially given that Warren would gradually transition these payments into a standard Employer Medicare Contribution calculated as the "average health care cost-per-employee nationally."

This would be a monstrous tax on low-paid employees. The contribution would be in the ballpark of $9,500 per employee over the next decade — or a nearly 63 percent tax on someone working at full time at minimum wage. Conversely, it would be much easier on high earners, as $9,500 isn't much for someone making $150,000. Even a flat payroll tax — that is, a percentage charge on all wages — would be much, much more fair on both sides. A payroll tax plus an income tax (as suggested by Bernie Sanders) would be more progressive still, because the first 12-24,000 dollars in income are exempted from income taxes.

It's also a bit of a stretch to claim that Warren's plan does not raise taxes on the middle class. Even if employers are paying the taxes directly, they still take the money out of their labor spending bucket, and thus the taxes are ultimately paid by the workers. Now, we might say that existing employer insurance payments are basically taxes anyway, in which case it's arguably fair to say Warren would not increase taxes relative to the current reality, but at the end of the day workers are still going to be making some huge new payments to the government, and her insistence that we "don’t need to raise taxes on the middle class by one penny" is a little too cute.

Then there is the fact that Warren would exempt most independent contractors, and employers with less than 50 workers from these contributions, which presents a big incentive for big companies to either break themselves up into hundreds of little 50-person units or to make all their employees independent contractors in order to avoid the tax.

Anyway, I am virtually certain Warren's policy team knows all this, and would not actually structure a plan this way if she was writing a bill. So why this goofy tax? Well, it allows her to dodge some of the landmines in the mainstream policy discourse, which generally holds that taxes are bad by definition, especially on anyone other than the rich. It also gives her a plan she can use to roll up and whack Pete Buttigieg on the nose with when he cynically pretends as though having a completed tax plan before the next Congress has even been elected is the most important thing a presidential candidate can do.

I appreciate that Warren is sticking to her guns on Medicare-for-all. But Bernie Sanders' approach to financing is more productive and more honest. Instead of dancing around the issue, he puts it straight — saying essentially that we're going to have a great new benefit, all cost-sharing is going away, and you will have to chip in some new taxes, but almost everyone will come out ahead. It sounds less squirrelly — and does the important ideological work of advancing the idea that taxes are the way sensible countries pay for a decent society, not some kind of theft. What's more, it makes his tax proposals better on the policy merits.

Straightforward, breezy confidence is the way to defeat bonehead assumptions and bad-faith questions. The only way around duplicitous tax-baiters and their media enablers is through.

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