Medicare for All: Why It Would Come with a 42% National Sales Tax

A 42% tax would destroy consumer spending – the backbone of the U.S. Economy.

By Rick Newman

WASHINGTON, D.C. (Texas Insider Report) —
 If you’re a Democrat who supports “Medicare for All,” pick your poison. You can ruin your political career and immolate your party by imposing a ruinous new sales tax, a gargantuan income tax hike or a surtax on corporate income that would wreck thousands of businesses. Such are the costs of bold plans.

Supporters of Medicare for All – the huge, single-payer government health plan backed by Bernie Sanders, Elizabeth Warren and virtually every other Democrat presidential candidate – say it’s time to think big and move to a health plan that covers everyone.

Getting there is a bit tricky, however.
  • A variety of analyses estimate that Medicare for All would require at least $3 trillion in new spending.
  • That’s about as much total tax revenue as the government brings in right now.
  • So, if paid for through new taxes, federal taxation would have to roughly double under the Democrat's plans.
The Committee for a Responsible Federal Budget (CRFB) has done voters a favor by spelling out what kinds of new taxes it would take to come up with that much money.

Warren justifies many of her programs by saying all it would take is “two cents” from the wealthy. That’s a reference to her 2% wealth tax on ultra-millionaires.

But Medicare for All would be so expensive that if you taxed top earners at 100% — that’s right, if you took all the income of couples earning more than $408,000 per year — you’d still fall far short.

And, everybody getting taxed at 100% would obviously stop working.

So that won’t do it. Then, you ask, what will?

CRFB outlined a variety of options.

A 42% national sales tax (known as a valued-added tax) would generate about $3 trillion in revenue. But it would destroy the consumer spending that’s the backbone of the U.S. economy. A tax of that magnitude would be like 42% inflation, wrecking consumer budgets and the many companies that depend on them, from Walmart and Amazon to your local car dealer.

Other possible option could include:
  • A 32% Payroll Tax split between employers and workers.
  • Or, a 25% income surtax on everybody.
  • Or, the government could cut 80% of spending on everything but health care, which would include highways, airports and the Pentagon.
  • Or here’s a good one: Just borrow the money and quadruple Washington’s annual deficits.
The best idea might be charging every enrollee in the new program $7,500 per year, so they’d be paying directly for the coverage they’re getting. Some people pay more than that now for health care, by purchasing insurance outright or sacrificing pay raises in exchange for employer coverage.

It'd still be a nifty trick to propose that to voters.

The upside to these impossibly draconian scenarios is that nobody would pay anything for health care, except in the $7,500 example. And it’s possible that Medicare for All would cover health care for more people at a lower total cost than we spend now, meaning the average cost per person would go down.

The problem is transitioning from what we have now to whatever Medicare for all would be.

And it’s a giant problem, like crossing the Mississippi River without a bridge or a boat. The other side might look great but you’ll die before you get there.

Warren, Sanders and other Democrats tout the virtues of such magical health care program ideas without explaining what it would cost.
Sanders has at least suggested some possible ways to pay for it, including premiums paid by enrollees, a wealth tax on millionaires and income tax rates as high as 52%.

Warren has been cagier, saying only that under her plan “costs” would go down for middle-class families. Under pressure to explain, Warren has pledged to come up with a financing plan soon.

Now, maybe she doesn’t have to.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman.