Senator Elizabeth Warren, D-Massachusetts, has revealed how she anticipates financing Medicare for All (M4A). Summing up, her plan underestimates costs, overestimates revenues, and glosses over devastating effects on the U.S. economy.
Warren assumes M4A would add around $20 trillion to the federal budget over 10 years. My colleague, Chuck Blahous puts the number at around $33.4 trillion. The bipartisan Committee for a Responsible Federal Budget assumes $30 trillion. The left-of-center Urban Institute estimated that a similar program would raise federal expenditures by around $34 trillion.
Warren obtains her low estimate by assuming away costs that are unlikely to go anywhere. She assumes the federal government can force prescription drug prices to plunge by 70 percent (devastating to new drug development if implemented, but more likely impossible to implement). She assumes doctors and hospitals will accept massive income reductions and still provide their services. She assumes that, unlike the Department of Defense and other federal agencies, M4A will be a paragon of efficiency and bargaining prowess.
Outside of the ultra-rich and corporations, she infers, Americans will experience no tax increases. Former Obama adviser Stephen Rattner concludes that nearly 50 percent of Warren’s revenue sources are “classic gimmicks that people use when they can’t get the numbers to add up.”
Perhaps Warren’s most controversial proposal is a wealth tax of up to 6 percent on billionaires. Federal wealth taxes are probably unconstitutional, but that aside, they would be economically ruinous. Microsoft founder Bill Gates said: “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to pay $20 billion, it’s fine. But when you say I should pay $100 billion, then I’m starting to do a little math over what I have left over.”
In response, Warren posted an online “calculator” to persuade Gates and his peers of the benign nature of this tax. It likely does the opposite. Gates would have to come up with more than $6 billion in cash every year forever. Aside from Disney’s Scrooge McDuck, billionaires don’t keep vast sums of cash lying around, so they would find themselves perpetually liquidating large chunks of their portfolios, permanently destabilizing asset markets.
Such ceaseless liquidation may not even be possible. Warren’s plan would tax unrealized capital gains. Imagine a cash-poor, idea-rich entrepreneur whose high-tech start-up soars to a $2 billion valuation before earning a cent. Somehow, she would have to scrounge up $240,000 in cash every year. And what if the start-up ultimately fails, obliterating her paper billions? Does the government then return the taxes on wealth that never really existed?
Warren’s wealth tax effectively commands entrepreneurs, “Count your chickens before they’re hatched, and pay us the anticipated proceeds today.”
Many innovators will have no choices other than to leave the country or cease innovating altogether. At the risk of a second poultry metaphor, this tax kills the geese laying golden eggs.
Asked what would become of the half million or so health insurance industry employees who would lose their jobs under her plan, Warren said, “So if you’ve had a chance to read the plan, you’ll see no one gets left behind. … Some of the people currently working in health insurance will work in other parts of insurance — in life insurance, in auto insurance, in car insurance, some will work for Medicaid.”
Presumably, she meant “Medicare for All,” since present-day Medicaid, Medicare and private insurance would all be abolished and replaced by an entirely new system. But more important, you can’t just brush away the massive employment dislocations in the health insurance industry with the bromide, “no one gets left behind.”
Health insurance has little in common with life insurance or auto insurance, other than the noun “insurance.” Warren might as well promise, “When we outlaw horse racing, some of the horse jockeys will find work as computer jockeys or disk jockeys.”
Even if health insurance skills were transferrable to life or auto insurance, there’s absolutely no reason to think the life and auto insurance industries will suddenly need half a million new employees. It’s like firing half the auto manufacturing workers in America and assuring them, “I’m sure you’ll find something.”
In short, Warren’s document is more fantasy than plan.