Cha-Ching: Elizabeth Warren, Healthcare And Taxes

You’ve heard the policy arguments repeatedly, so we won’t rehash the details. Suffice it to say there’s a whopping imbalance in our collective bang for the buck when it comes to the U.S. healthcare system.

There are variations in the design of other countries’ national health programs, but very few rely on employment status. “Go get a job” may be sound advice for 20-somethings living in their parents’ basement, but it’s not how you’d design an optimal healthcare delivery system if starting from scratch.

Our reliance on employer-provided plans is a classic example of path dependency. We belatedly realized that it’s a flawed system, but it’s also what our culture has learned to accommodate. To jettison it now would be massively disruptive. We already have a national healthcare regime that’s relatively popular: Medicare. Sen. Elizabeth Warren, D-Mass., wants to lower the eligibility age to zero. The minute you’re born, you’re covered — and it stays that way throughout your entire life.

We recently learned how Warren intends to pay for her ambitious Medicare for All proposal. Previously, she spoke only in vague terms about how some economic burdens (read: your taxes) might increase while other related expenses (read: your premiums, deductibles, and co-pays) would either decline or vanish altogether. And just imagine how much larger your paycheck will be once your employer is no longer obliged to insure you and your dependents. That’s not an outrageous argument, but it does require a bit of salesmanship. Even voters who might be generally sympathetic to Warren’s intentions are skeptical about how well this supposed trade-off would work in practice.

What if your taxes increase to help fund Medicare expansion, but your take-home pay stays exactly the same? Who’s to say that employers wouldn’t simply pocket the savings? The economics of the labor market suggest that in the long term, most of an employer’s insurance savings would be passed on to the workforce in the form of higher wages — otherwise they risk losing skilled workers. But that process could take years. People are leery about rose-tinted predictions of future benefits falling into their lap through the invisible hand of market dynamics.

Politically speaking, Warren needed to answer to the most obvious of questions: Would taxes increase for middle-income taxpayers? The need for clarity only increased after the other progressive candidate in the presidential race, Sen. Bernie Sanders, I-Vt., acknowledged that taxes would increase under his healthcare plan. Centrist Democratic candidates, such as Sen. Amy Klobuchar, D-Minn., have declared that it’s a pipe dream to imagine that the country could fund Medicare for All without some kind of tax increase on middle-income taxpayers. Warren needed to rebut those arguments.

To that end, Warren created a package of revenue raisers that she claims will net some $20.5 trillion dollars over the 10-year budget window from 2020 through 2029. In cobbling together the various pieces of her tax plan, she borrowed from existing proposals that many readers will recognize. Accompanied by Warren’s revenue estimates, these include:

1. Financial Transactions Tax. This aspect of Warren’s tax plan resembles a proposal by Sen. Brian Schatz, D-Hawaii, to impose a new tax on the major Wall Street players as they trade in financial securities. The rate would be very small — merely 0.1% — but it would cover such a vast number of transactions that it’s estimated to raise $900 billion. Warren’s preferred version of the financial transactions tax would also include a supplemental fee on financial institutions that incur excessive risk.
2. Accelerated Depreciation. Every tax system permits cost recovery in some manner; the details vary as to timing. Existing law is fairly generous in allowing many categories of costs to be recouped on an expedited basis. Warren would reverse that result, spreading cost recovery over a greater number of years. This idea has been in the Democratic playbook for some time. The change would raise an estimated $1.25 trillion.
3. Global Minimum Tax. Among the accomplishments of the 2017 tax reform law (commonly known as the Tax Cuts and Jobs Act) was the coupling of a large corporate rate cut with a significant base broadener related to foreign profits. The latter took the form of a global minimum tax on returns from outbound investments. Generally speaking, the tax is designed to kick in when foreign profits are taxed at a rate of less than 13.125% in the source country. While most Democrats praised the concept, some objected that the structure of the minimum tax was imperfect. As written, the tax permits profits from high-tax and low-tax jurisdictions to be pooled together. This blending effect tends to water down the backstop. Warren wants to fortify the tax by applying it per country, and at a much higher threshold. This revised proposal would raise $1.65 trillion.
4. Wealth Taxation. Here, Warren is borrowing from herself. She has been touting the virtues of wealth taxation since the early days of her campaign. What’s new is that she links the tax with a specific public entitlement. Her plan features a bifurcated rate structure. It imposes a 2% annual tax on accumulated wealth exceeding $50 million, with the rate increasing to 6% on wealth exceeding $1 billion. Previously, the upper rate was only 3%. The revised proposal would raise $1 trillion.
5. Mark-to-Market. Our tax code already taxes capital gains, albeit at a discounted rate compared with ordinary income. But you still must sell or otherwise dispose of the capital asset to trigger a taxable gain. Lately there’s been some momentum for rethinking that position. Taxing unrealized gains could be a major source of new tax revenue. Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, has voiced support for the concept so long as middle-income taxpayers are not affected. Warren similarly calls for mark-to-market treatment for wealthy taxpayers. The proposal would raise $1 trillion.
6. Funding and Enforcement. Another obvious target is the tax gap — the difference between taxes due and what the IRS actually rakes in. Closing the tax gap is a revenue raiser that doesn’t outwardly look like a tax increase. You get there through increased IRS enforcement. To that end, Warren would reverse recent IRS budget cuts. That alone could boost federal tax receipts, on net, by $2.3 trillion.  

Here’s the important thing to keep in mind: These revenue raisers are best viewed as a form of political messaging. Warren’s personal brand is that she’s a progressive technocrat with an answer for almost everything. Given that posture, she couldn’t avoid telling us how she intends to pay for new government spending.