Report: Medicare For All Requires Huge Taxes, High Prices, Ballooning Deficit

Taxing the rich not enough to pay for Sanders, Warren proposals

Sens. Kirsten Gillibrand (D., N.Y.), Bernie Sanders (I., Vt.), and Jeff Merkley (D., Ore.) / Getty Images
October 31, 2019

Funding Medicare for All could mean doubling tax rates, massive price increases, or exploding the deficit, according to a new report.

An analysis from the nonpartisan Committee for a Responsible Federal Budget (CRFB) reveals the enormous impact Medicare for All would have on spending, taxes, and the economy, a topic that many 2020 Democrats have been eager to avoid on the stump.

"By most estimates, Medicare for All would cost the federal government about $30 trillion over the next decade," the report says. "How this cost is financed would have considerable distributional, economic, and policy implications."

Medicare for All is generally estimated to cost around $3 trillion per year, roughly 75 percent of the federal budget. Questions about how the government will pay for such a program have plagued proponents, most notably Democratic presidential hopefuls Sens. Bernie Sanders (I., Vt.) and Elizabeth Warren (D., Mass.).

Both candidates have emphasized that government-run health care will rely on higher taxes for millionaires and billionaires. The report concludes that a "tax the rich" approach targeting top earners, corporations, and Wall Street would not fund Medicare for All on its own.

"There is not enough annual income available among higher earners to finance the full cost of Medicare for All," the report says.

Even if the government confiscated every dollar Americans earned above $204,000, it would still not come close to covering the annual cost. In a previous analysis, the CRFB found that even an "extremely aggressive list of tax increases" on wealthy individuals, corporations, and financial transactions could raise only $11 trillion over ten years, a third of what Medicare for All would require.

The CRFB report also explored alternative tax options for raising the money to cover costs. The report proposes two changes to the income tax, either adding a 25 percent income surtax to all rates, meaning that the bottom rate would rise to 35 percent, or doubling all rates such that the bottom rate rises to 20 percent. Such a change would mean a substantial burden to those making more than the standard deduction.

There are other taxes that could be increased as well. A 32 percent payroll tax on all wages would raise the requisite $30 trillion directly from workers' paychecks. So too would a 42 percent value-added tax, which would impose a 42 percent price increase on "most goods and services." An additional available option is to impose a national flat health care premium, which would amount to $12,000 per individual after accounting for exempted persons.

If Medicare for All supporters do not want to raise taxes, they could also reduce spending. CRFB estimates that an 80 percent reduction in non-health federal spending would free up the needed revenue. It would also mean cutting Social Security payments from $18,000 per year to $3,600 per year, or reducing the size of the military from 1.3 million active duty soldiers to 270,000. Medicare for All could also be deficit-financed, increasing the national debt to 108 percent of GDP—the report estimates that this would in turn reduce GDP by 5 percent by 2030.

"Most of the options we present would shrink the economy compared to the current system," the report explains. "The 32 percent payroll tax hike, for example, would increase the effective marginal tax rate on labor by about 23 percent after accounting for various interactions," in turn diminishing per-person income by about $3,200 and hours worked by 6.5 percent.

The report offers one other option to cut costs: reduce the services offered by Medicare for All. The CRFB points to an analysis from the Urban Institute which found that charging beneficiaries 5 to 20 percent of costs—depending on income—and excluding vision, dental, hearing, and long-term services from government coverage, would cut costs to about $1.5 trillion a year.

The report is neutral on whether Medicare for All is good policy; it focuses solely on how such a system could be paid for and sustained. It notes that most options would be more progressive, tax-wise, than the status quo, but also have a drag effect on the economy as a whole.

The new report comes as 2020 Democrats supporting Medicare for All face increasing pressure to explain how they will pay for it. Warren, whose opponents have criticized her for refusing to say whether her plan requires tax hikes on the middle class, has promised to release a plan in the near future. Sanders has admitted his plan will require a tax increase on the middle class, but has declined to explain the details. Both have argued that any tax hike will be offset by lowered costs for insurance premiums and out-of-pocket expenses.