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Three Takeaways From Elizabeth Warren’s Plan to Pay for Single Payer

Elizabeth Warren speaking during the Iowa Democratic Party Liberty & Justice Celebration on Friday in Des Moines. Photo: Joshua Lott/Getty Images

Against my advice, Elizabeth Warren has given a specific answer to the question she’s been dodging in debate after debate: How would she come up with the tens of trillions of dollars she would need over a decade to finance her Medicare for All plan?

Her financing plan, announced Friday, has many components, but they can largely be grouped into three buckets. One is cost-control measures, like controlling payment rates to doctors, hospitals, and pharmaceutical companies that bring down the price tag for single payer. A second is new taxes and better tax enforcement aimed at corporations and wealthy individuals. And a third is the repurposing of funds currently spent on health care by state and local governments, and by employers.

The “employers” item is huge — about $9 trillion over a decade in Warren’s estimation. Roughly, employers would be required to continue spending what they’re spending now on health coverage, but instead of paying it to insurance companies, they’d pay it to the government, less a 2 percent discount. In two important ways, this charge is different from the payroll taxes you might more traditionally see attached to single-payer proposals. It would be a flat, per-employee charge, meaning employers wouldn’t pay more to the extent an employee gets a raise or works more hours. And it would largely avoid creating winners and losers: Unlike a payroll tax, which would weigh more heavily than the current system on some employers and less heavily on others, this would give employers clarity and continuity on their health-related spending, with all employers getting a slight savings.

That said, in avoiding some of the problems associated with a switch to single payer, this proposal would keep some of the downsides associated with our existing system of employer-provided insurance. A talking point you often hear in favor of Medicare for All is it would relieve employers of the burden of paying for health insurance; this, obviously, leaves that burden in place. The large, lump-sum, per-employee health-care charge would remain a barrier to new hiring. Matt Bruenig also worries about gaming (that companies could avoid Warren’s proposed charge by converting employees to contractors or spinning them out into separate, small firms) and that could be an issue, but Obamacare already creates incentives for those behaviors and yet it does not appear to have had large effects in that direction.

This proposal is a kludge. I do not mean that as a criticism. Prior efforts at health reform have fallen apart over people’s fears that too much would change, and their own personal situation would change for the worse. Changes in a system as complex as our health-care system can also have unforeseen and unintended consequences. So preserving status-quo aspects of the system can make sense even if the status quo is not what you should have chosen at the outset. And what Warren has done here is find a way to largely preserve the status quo about who pays what, while moving to a single-payer system. This removes a lot of possible political objections of the “I, personally, expect to get screwed under this system” variety.

There is one key exception to Warren maintaining the status quo about who pays what: As employer payments are held more or less constant, individual payments toward health care would be vastly reduced, replaced by new government payments financed by taxes on corporations and the wealthy. This obviously sweetens the pitch to workers: Your employer won’t have to pay more for your health plan, and you personally will have your deductible wiped away, with the bill sent to some rich guy. Taxes on the rich and corporations would also finance coverage for the currently uninsured.

Warren’s revenue proposals in this area are a mixed bag, but I find some of them quite implausible. Most notably, Warren has doubled her proposed annual wealth tax on billionaires, from 3 to 6 percent. This proposed tax was already constitutionally dubious, and her advisers are overconfident about their ability to succeed where European countries have failed at assessing and enforcing such taxes. They are right about one key American advantage: We already tax the worldwide income of our citizens, even if they move abroad, so the tax cannot be avoided simply by moving away. I would be much less quick to accept their assumptions that the U.S. can do much better than peer countries at assessing the value of illiquid assets, conducting enforcement, and turning back lobby groups that seek wealth-tax exemptions (often with plausible arguments). Finally, 6 percent is pushing the level where billionaires’ income would be subjected to implicit tax rates around or above 100 percent, which could diminish the incentive to build the sorts of businesses that create billion-dollar fortunes to begin with.

Warren also makes very aggressive assumptions about our ability to collect more taxes already owed under current law through better enforcement. I favor increased spending on tax enforcement, but all tax systems have tax gaps, and I would not count on getting nearly an extra $3 trillion per decade just through a better IRS. She also hopes to tax 35 percent of the worldwide income of U.S. corporations, not just undoing the 2017 tax cut, but subjecting U.S. multinationals to much higher taxes on their foreign income than they paid before.

This proposal does not just concern tax havens. Suppose Procter & Gamble sells detergent in France, where it faces an income tax rate of 25 percent. Under Warren’s plan, P&G would pay 10 percent tax to the U.S. on its French income, so that its total tax on income earned anywhere in the world would be 35 percent. But if Netherlands-based Unilever sells detergent in France, it would only pay the 25 percent tax to France, with no additional tax either to the U.S. or to the Netherlands. This structure would put U.S. multinationals at a significant disadvantage when competing abroad, and also create an incentive for U.S. firms to sell to foreign acquirers to avoid this tax treatment.

UC Berkeley economics professor Gabriel Zucman, who has advised Warren on tax issues, appeared on my KCRW podcast, Left, Right & Center, this week, and he said he believed a U.S. move to tax corporations at higher rates and on their worldwide income could set off a movement by other countries to follow suit, avoiding the P&G–Unilever problem I describe above and leading to much higher global tax collections from corporations. The problem is, trends in corporate taxes over the last several decades have been the opposite: Other rich countries cut their corporate taxes earlier and sometimes more aggressively than we did, showing little interest in establishing a global norm of high corporate taxes.

Zooming out, Warren’s plan is a bet on a bold proposition: That a very large expansion of government benefits around health care can be financed without a middle-class tax increase. Importantly, what she is proposing is not nearly as large an expansion as Bernie Sanders has proposed, because her plan effectively does not eliminate employer-paid insurance premiums, the costs of which economists believe are ultimately borne by workers. But she is still proposing to finance about $8 trillion of new health-care spending through taxes on the wealthy and corporations over a decade, on top of the trillions more in spending on education and childcare she had already proposed to be financed with the first tranche of her wealth tax.

All that said, I continue to believe what I believed before this announcement: If elected president, Elizabeth Warren would not enact single payer. If she wins, she will either be working with a Republican-controlled Senate or a Senate with a narrow Democratic majority where she would depend on votes from senators like Kyrsten Sinema and Joe Manchin. There are many components of this plan they are unlikely to ever sign up for, starting with the elimination of private insurance.

Warren’s plan does not get us closer to single payer because it does not fix the fundamental problem with single-payer plans in the American context. Our high costs make single payer more problematic to implement here than anywhere else, because our high prices mean greater financing needs than you’d have anywhere else. Warren’s ideas about cost control, many of which are worthy, would start putting a dent in that — and many of them could be implemented without broader changes to the system of health-care financing. That’s where I’d encourage the next president to start.

Three Takeaways From Warren’s Medicare for All Payment Plan