Presidential hopeful Elizabeth Warren says she has found a way to do what her rivals thought impossible—provide a government-backed healthcare option without directly raising taxes on those who aren’t in the highest income brackets.
The multitrillion-dollar Medicare for All plan includes a 0.1% tax on the sale of bonds, stocks, and derivatives; a restored 35% corporate tax rate; a minimum country-by-country tax on foreign earnings of 35% without the option of deferral; and higher taxes on the very wealthy.
The plan, released Nov. 1, represents a careful balancing act. Warren used revenue raisers that would be more politically palatable than a direct middle-class tax hike. Warren’s lack of defined pay-fors led to fierce criticism from her rivals in the last debate, who said she just wasn’t willing to admit that she’d have to raise taxes on the middle class.
“She doesn’t want people to be able to say that middle class taxes are going up to pay for it,” said Daniel Shaviro, a tax professor at New York University School of Law.
It still remains to be seen whether the plan’s net cost will actually be zero dollars, but the pay-fors she has chosen should generate substantial revenue, said Shaviro, who formerly worked at the congressional Joint Committee on Taxation.
Warren called for closing the annual “tax gap,” the difference between total taxes owed and taxes paid. Her plan lays out changes that she estimates could close the gap by a third—generating about $2.3 trillion in revenue.
The changes include: increasing the IRS’s budget, expanding third-party reporting and withholding requirements, strengthening a law that requires foreign financial institutions to report the foreign assets held by U.S. taxpayers, and giving more protections to employees who report tax evasion and abuse.
“A reduction of that magnitude in the tax gap would be easier said than done,” former IRS Commissioner Mark Everson said.
One of the biggest components of the tax gap is under-reporting of income by a lot of small businesses, which is a challenging problem to address, said Everson, now vice chairman of alliantgroup LP.
While there’s no doubt that enforcement can be improved so that the IRS can bring in more revenue, it’s also important not to go overboard and jeopardize taxpayer rights, he said.
Warren’s wealth tax also raises complicated enforcement questions, because many assets of the very rich include closely held companies and real estate, which are difficult to value, on top of assets such as stocks and bonds, former IRS Commissioner John Koskinen said.
“The audit challenges will be significant. The same applies to trying to tax the capital gains each year on those assets, whether the asset is sold or not,” he said.
The Congressional Budget Office has estimated that $55 billion in revenue could be generated over a decade by increasing IRS enforcement 35%.
Warren’s campaign didn’t respond to a request for comment.
The Middle Class
Warren said in a Medium post Nov. 1 that opponents of Medicare for All try to “scare middle class families about the prospect of tax increases—despite the conclusions of expert after expert after expert that it is possible to eventually move to a Medicare for All system that gives both high quality coverage for everybody and dramatically lowers costs for middle class families.”
While, in a narrow sense, Warren achieves that goal, the group may actually see some increases, said Nicole Kaeding, an economist and vice president of policy promotion with the National Taxpayers Union Foundation.
For example, Warren proposed a payroll-style tax on employers, but many economists agree that payroll taxes are actually paid by workers, Kaeding said.
Still, a clever component of Warren’s plan is that a large portion of the financing aligns with existing costs—costs won’t change for state and local governments, and employers will pay slightly less, said Seth Hanlon, senior fellow at the Center for American Progress Action Fund.
The combination of higher taxes on the wealthy and corporations, better tax enforcement, and immigration reform means Warren “can credibly describe this as an $11 trillion tax cut for households,” he said.
Warren would legalize undocumented immigrants and require them to pay taxes.
Biden campaign spokeswoman Kate Bedingfield said Nov. 1 that the estimated $8.8 trillion that companies would pay into Medicare For All amounts to a middle-class tax hike.
“For months, Elizabeth Warren has refused to say if her health care plan would raise taxes on the middle class, and now we know why: because it does,” Bedingfield said in a statement. “Senator Warren would place a new tax of nearly $9 trillion that will fall on American workers.”
Sen. Bernie Sanders (I-Vt.), like Warren, would like to impose higher taxes on the rich and corporations to pay for his Medicare for All plan. But he has also suggested charging employees a 4% income-based premium—exempting the first $29,000 of income for a family of four.
He also talked about imposing a 7.5% income-based premium paid by employers, exempting the first $2 million in payroll to protect small businesses.
Unlike Sanders, Warren “goes to great lengths to shield the middle class from tax increases, in part, by her use of a wealth tax,” said Jim Manley, a political strategist who was previously top staffer for former Senate Majority Leader Harry Reid (D-Nev.).
Manley, however, said he couldn’t support the plan because he favors building on the strengths of the Affordable Care Act, while working toward a single-payer plan of some sort.
South Bend, Ind., Mayor Pete Buttigieg, who has proposed a more moderate “Medicare for All who want it” plan, would focus primarily on returning the corporate tax rate to 35%.
Even if Warren is elected, it would be a challenge to get the support she needs in Congress to pass the plan in its entirety.
The plan—particularly on corporate taxation—is well to the left of former Democratic President Barack Obama, who wanted to lower the corporate income tax rate to 28%, Kaeding said.
“Congress just reduced the rate from 35% to 21% less than two years ago. An effort to undo that so soon seems likely to meet resistance in both Congress and from the business community,” said John Gimigliano, principal-in-charge of federal tax legislative services at KPMG LLP, who worked as senior tax counsel for Ways and Means from 2005 to 2008.
—with assistance from Sahil Kapur.