Presidential hopeful Elizabeth Warren has a plan for everything, including how to finance a health care spending increase of more than $20 trillion, supposedly without raising taxes on middle class families. Her plan on paper does not raise taxes on middle class families. But in the real world, although middle class families would receive benefits from the plan by Warren, they would not be immune from the burden of its tax increases.
Her proposal would hike or impose an assortment of taxes. Wealth tax? Create one. Financial transaction tax? Levy one. Corporate income tax? Raise it. Capital gains tax? Increase it to ordinary income tax rates and make it due each year for certain taxpayers. The list goes on. While many of the taxes Warren proposes to raise fall more heavily on those with high incomes, such as capital gains and corporate income taxes, the burden of these types of taxes on the middle class cannot be ignored. Even if middle class families do not sign the check to pay the bulk of these taxes, they still suffer when jobs are not created and when their incomes are lower.
Raising the corporate income tax, enacting an entirely new surtax on businesses, and changing the way that businesses get to deduct their investment costs for tax purposes, all of which Warren proposes to do, would discourage people from investing and make the United States a less competitive place to do business. With less investment in productive capital, such as new machinery and factories, worker productivity would suffer along with output and wages, leaving all Americans worse off.
The plan also seeks nearly $9 trillion in new government payments from employers. Warren has defined this as a contribution, but calling it by another name does not change the underlying economics. These new employer payments, in the form of a flat contribution for each employee in place of the insurance premiums, amount to a payroll head tax. Any economist will tell you this type of tax is ultimately borne by employees. Employers write the checks, and money that could have been used as compensation for employees would instead go toward the government.
Even her Democratic rivals understand that these “Medicare for All” tax increases in her plan would affect the middle class. Bernie Sanders said of the employer contribution, “I think that that would probably have a very negative impact on creating those jobs, or providing wages, increased wages, and benefits for those workers.” Joe Biden said more broadly, “Her plan would create a new tax on employers of almost $9 trillion that would come out of workers pockets, a new financial transaction tax that would impact investments held by middle class Americans, and a new capital gains tax that would affect far more people” than Warren has claimed.
We can debate the extent to which middle class families will truly feel the negative economic impact of the different taxes in her proposal, but we cannot pretend that they will be magically unaffected. While we should give credit to Warren for developing a detailed plan to fund her proposal, it is simply false to say that the middle class will not be burdened by these tax increases required to fund her health care program. Whether people would be better off under this plan is a serious policy question to explore, but there is little use in pretending there will be no consequences. Middle class families will feel the burden of $20 trillion in new taxes either way.
Erica York is an economist with the Tax Foundation based in Washington.