I’ll be putting up a post soon on how I would pay for Medicare-for-All, but I first wanted to address why I’m going to use a payroll tax.
Payroll taxes are a very powerful tool: they’re hard to dodge and raise tons of revenue. But some have argued that raising middle-class taxes isn’t politically feasible. So when Warren released her plan to pay for Medicare-for-All, it did not include a payroll tax. Instead, it included what she called an “Employer Medicare Contribution”, which would be a flat dollar amount employers pay for every employee they have.
Dollars paid to the government… well that’s obviously a tax. Specifically, this type of tax is a head tax, which is significantly less progressive than a payroll tax, which is a flat RATE.
“[T]he $9,500 head tax is equal to 63 percent of the earnings of the worker making $15,000 per year, but only equal to 5 percent of the earnings of the worker making $200,000 per year. For the employer-side payroll tax, it is 8 percent for everyone.” (Source)
We should note here that it doesn’t matter that the employer is the one paying taxes to the government. Nowadays, payments towards employee’s health insurance basically comes from wages, and the same would be true with taxes. In the economics jargon, the tax incidence is on employees, not employers.
Now one might argue that even though it’s a head tax, you can pass it off as something else and people will be more amicable to it. But head taxes and payroll taxes have basically the same polling numbers.
So the payroll tax is better than the head tax. But why such a big payroll tax? Well:
“[Y]ou’ll want to increase the employer-side Medicare tax to capture the money that employers are already paying into private insurance premiums” (Source)* That’s because, shifting costs like this would be a small shock. Put the payroll tax too high, and you would have to worry much about economic effects. Put it too low and employers will be saving money: but because unions are so weak, that money is unlikely to get to employees.
And why increase the employer-side tax specifically? Well, visibility of taxes is a big deal, and the this tax is not visible. For any big welfare state, you’ll want to maximize visibility of benefits, and minimize visibility of the taxes needed to fund them. Plus, although the tax incidence is on employees, it’s always nice to rhetorically imply employers will be paying it.
Tune in next time when I argue for a value-added tax!
*Note that this article proposes flattening all payroll taxes. I approve, but Social Security should be the same rate it is now, except applied to everyone to keep the program solvent.