Rethinking medicare for all again: are the taxes really that bad?

 So, I've been rethinking Bernie's Medicare for All again and I really have to wonder, are the taxes really that bad?

First of all, the 7.5% payroll tax. I counted this against the laffer curve in previous estimate, but I'm starting to wonder if it belongs there. After all, it is a tax on the EMPLOYER side of things, replacing current healthcare contributions they do make. While one can argue economically that employees DO pay this tax in net, it's essentially a hidden cost to employees. When someone applies for a job, their pay is mentioned, and healthcare benefits are often mentioned. But payroll taxes on the employer side don't directly come out of pay. It's an extra tax paid by employers, and the economic argument for employees paying comes out of the logic that employers need to consider these extra costs when hiring employees and if they didn't have these costs they would offer them more money. This isn't necessarily true and relies on trickle down economics logic in which if employers were freed of these costs they would pay their employees 7.5% more. Given I operate on the logic employers pay employees the least they can get away with, eliminating this tax on employers would probably mean more money to employers. The money this tax is subject to is visible to employers, but likely does not factor into the work incentive of employees at all. And given it covers an already existing cost, couldn't this basically be considered a "free lunch"? That's kind of the weird thing about medicare for all. In a sense it is a free lunch because its taxes are often replacing already existing costs in the economy and reducing them. So I'm not sure if this tax should be weighed against the laffer curve.

Second, there's the 4% tax on households. One correction I want to make from previous articles I've done: this tax only applies to people making over a certain income threshold. For a family of four, this would be $29,000, which is just above the poverty line. That said we would not see households near the poverty line paying a ton of money in taxes replacing premiums. Moreover, the amount paid on the high end actually is less than or about equal to what would be paid under medicare extra for all. This would likely be an extra tax on the rich, and given the 47% they currently pay, and the 20% under my UBI plan, an additional 4% would bring them up to 71%, which is just over the laffer peak, but still within what I would consider acceptable parameters. We would need to scale back on Biden's plan to expand preK and paid family leave though as that included raising the federal rate from 37% to 39.6%, which would bump the overall rate the rich pay to 74%, which is kind of pushing it, but yeah, I could see the 4% tax in and of itself as doable.

At the same time, a lot of Sanders' plan is funded by extreme taxes on the wealthy that, under my own existing UBI plan, would not work. He would want to raise taxes on the rich all the way to 52%, which given my UBI plan and local taxes and the above household tax would mean the rich's tax burden would be up to 86%. Again, without UBI his plan works and the rich would pay 66%, but with it, the numbers don't add up. Thankfully this in and of itself isn't essential as Sanders estimates only raising $70 billion (only people making more than $10 million would be subject to this tax), so this isn't really essential to include in the plan, but it would need to be modified.

Where things get dicey would be wanting to tax capital gains as regular income. Currently capital gains are taxed much lower than normal income, at around 15-20%. This is why the rich pay so little in taxes. Part of the reason for this is capital gains have a much lower laffer curve rate. Money gained via capital gains is often gambled in the stock market, and gains are deemed uncertain. If these things are taxed too heavily, it would destroy the profit motive of taxing such things. Now, 15-20% is too low. The laffer curve is around 30%-40%, and we've had rates as high as 35% before. And my UBI plan does tackle investment and dividend income, taxing it at an additional 20%, so that might bump that up as high as I would want it to go, around 35-40%, so I'm already on the high side of what is favorable. With Bernie's plan, they would be paying the same ~70% rate on income I'm targetting for normal income for the rich, which would destroy any incentive to play the stock market or pull out investments as long as the tax rate is that high. Bernie's plan here relies on drawing in $250 billion a year via higher taxes on capital gains, which means between this and the tax on the rich being raised to 52%, the capital gains rate would be way too high. Heck, even without UBI his plan here seems like an awful idea. Even 52% is above the laffer curve. Keep in mind the maximum you want to raise capital gains rates to would be around 40% at the absolute most.

Let's see where things stand. Bernie's Medicare for all plan, under my amendments, would draw revenue from the following sources:

7.5% employer side payroll tax- $520 billion

4% household tax- $400 billion

Eliminating health tax expenditures- $300 billion

"Replacing the cap on the state and local tax deduction with an overall dollar cap of $50,000 for a married couple on all itemized deductions" - $40 billion

For the 99.8% Act (estate tax)- $34 billion

Corporate tax reform- $100-300 billion

Tax on extreme wealth- $35 billion

+                                             

$1.429-1.629 trillion

We need $1.75 trillion a year to fund it properly. So cutting those aspects of Bernie's plans hurts a bit. 

It should be noted that the varying costs from corporate tax reform come from the idea that Bernie originally would have funneled $200 billion of the original $300 billion plan to the green new deal, while $100 billion would go for M4A. However since I dont support the green new deal, I am perfectly fine with that money going all to M4A to make up for the hole caused by me scaling back Bernie's plans here.

However, this still leaves us $146 billion short. To make it work, we could make the household tax a little higher, maybe 5.5%, which should bring in an additional $150 billion in revenue. 

This would make the net tax on the ultra wealthy up to around 73% instead of 71%. I would say it's doable. Pushing it, but doable.

I know progressives probably hate me for being like "but what about the rich we should tax them at 99%". I mean, I can see the arguments from a moral standpoint. But I'm trying to make numbers work and tax rates above 70% might discourage work and production, decreasing revenue and destroying economic activity. I focus on trying to maximize revenue over moral arguments about how Jeff Bezos should pay a 90% tax rate. So I'm filtering my ideas through the ruthless "does it work?" mindset. And...I can make Bernie's numbers work with some modifications, but it would require everyone else paying a bit more. Still, this would save people tons of money regardless.

I'm still not 100% sold on medicare for all at this point. It's expensive, and while one could argue it is worth it, as it would make all healthcare costs free at the point of use, replace many existing costs with taxes, and ensure people can actually reasonably afford healthcare in a perfectly fair way, it is extremely expensive. I'll reiterate sentiments I've previously echoed. If I were a normal social democrat not trying to fund a $3.6 trillion UBI plan on top of this, I would likely support Bernie's proposal, but funding this on top of UBI would be very difficult, and pushes us into the "yellow zone" (as in caution) as far taxation goes. It could have negative effects on the economy given my own inclinations on other policies. Perhaps this is a long term goal worth considering, and maybe I was too harsh on it in previous analyses, but I still am going to have to stick with medicare extra at this time. It's a more affordable proposal that makes more sense, even if the outcome is less ideal in my opinion.