Commentary on Commentary on Sanders’s Single Payer National Health Insurance Proposal

Bernie Sanders has proposed a federal national health insurance system which will provide no-deductible no copay insurance to all US legal residents.

Needless to say, this will be expensive. Amazingly, Sanders focused on what taxes he proposes be increased to pay for the program.

Kevin Drum is very favorably impressed by the (relatively) honest budgeting

“Bernie Sanders Releases Outline of Universal Health Care Plan—And It’s Pretty Good”

Drum also summarizes the plan very briefly and clearly

Here are his basic claims:

He will raise $630 billion by increasing the employer part of the payroll tax by 6.2 percent.
He will raise $220 billion via a 2.2 percent progressive income tax on everyone (he calls it a “premium”).
He will raise $548 billion in various taxes on the rich along with the end of current tax breaks that subsidize health care
That’s a total of $1.4 trillion
Current public spending on health care (mostly Medicare and Medicaid) runs around $1.2 trillion.
This means that Sanders is figuring that under his plan total national health care spending will be about $2.6 trillion.
This is considerably less than the $3 trillion we spend now, and Sanders also says that his plan will keep spending growth down. This accounts for his claim that his plan will reduce total national spending on health care by $6 trillion over ten years.

So is this credible? It’s close. His taxes will probably raise about what he says. I’m not sure that he can reduce spending as dramatically as he hopes, but he can probably reduce it some. In other words, his sums might not add up perfectly, but they’re pretty close.

I am going to discuss the taxes.

Ezra Klein (who is very expert on health care financing) is not impressed

“It’s everything critics fear a single payer plan would be, and it lacks the kind of engagement with the problems of single-payer health systems necessary to win over skeptics.”

I strongly disagree with one of Klein’s arguments. Klein objects to Sanders’s reliance on higher taxes on high income and on capital income.

The rest of the financing would come through a raft of new taxes on the rich. Sanders would raise marginal rates on income over $250,000, he would raise the tax rate on capital gains and dividend income, he would hike the estate tax, and he would close sundry deductions and loopholes.

In general, I’m comfortable with higher taxes on the rich — though they’ve risen substantially in the Obama era already — but tax increases of the scale Sanders proposes here would begin to have real economic drawbacks. European countries tend to pay for their health-care systems through more broad-based, economically efficient taxes like VATs; Sanders’s effort to fund a universal health-care system so heavily on the backs of the wealthy would be unprecedented.

Klein really wants to discuss the insurance providing side of the plan not the taxes — the argument which I contest is tossed off. But it’s there in pixels and I will take it seriously.

I think the second paragraph is nonsense. Klein presents no historical evidence supporting his claim that the taxes Sanders proposed would have real economic drawbacks. The reason is that there is no such evidence. His argument is that European countries don’t do that (although in fact European income tax rates are high — the VAT is in addition to high income taxes). This isn’t an argument. It is based on the assumption that average European policy is optimal. I personally find this very irritating as the argument is very common in Italy where reverse nationalism means that if it is noted that Italian policy differs from the European average it is just assumed that everyone must agree that Italian policy should be changed.

Notably European economic performance must make reasonable people doubt European policy makers’ understanding of what is “economically efficient.” What is the argument that a VAT is economically efficient ?

Here I assert that an important part of the support for that view comes from people who equate regressive with efficient — who assume that redistribution from people with high income to people with low income is economically inefficient. This is based partly on an absurd definition of “economic efficiency” in which it is just assumed that the welfare of the rich is more important than the welfare of the non rich (I am not exaggerating google “Money metric welfare”). But it is also based on confident assertions on matters of fact which are not supported by the evidence. It is certainly *not* true that simple growth regressions suggest any “real economic drawbacks” of the marginal tax rates proposed by Sanders.

The official argument for a VAT is that, by taxing consumption not income it encourages saving. Now it just so happens that one of my PhD supervisor’s obsessions was on how to increase saving rates. Now he is obsessed with the risk if secular stagnation. Top economists are now arguing that a high tendency to save causes stagnation and instability. Yet the argument that policy should encourage saving is not affected at all. This reminds me of the way in which the great recession had only a brief and limited effect on hatred of budget deficits. Rich countries have had slack demand and a liquidity trap for 7 years now. It’s time people considered whether this is relevant to the debate on taxes and tax incentives.

Ezra Klein is better than this. I will now try to psychoanalyze the paragraph. First I think that Klein has a serious case of Europhilia — to him the fact that European countries didn’t do this implies that it shouldn’t be done.

Second I think he has internalized the political constraints. Such tax increases are outside the inside the beltway Overton window. But so, at the moment, is single payer. Any serious attempt to introduce a VAT would immediately reveal that it is politically impossible. “Soak the rich” is popular populism. “Soak the old” is political suicide. Large tax increases on high incomes might be politically possible some day. I don’t think a VAT tax ever will be.

Third I have to expect he hopes to have a lot of influence on the Clinton administration (if not a job with them). I sure hope so. If this requires a little bit of breazy dismissal of progressive taxation which won’t be enacted anyway, it’s fine by me.

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