This morning the editors of the Wall Street Journal, playing “gotcha”, chide Elizabeth Warren for not having a plan for health care reform other than vague support for “Medicare for All”. My advice: be careful what you wish for.
However, there is one plan that I believe that Sen. Warren needs to outline. How does she plan to induce Americans to pay taxes at the level that will be required to finance all of her other plans? A pledge to raise marginal tax rates isn’t enough. She needs to explain how she plans to increase the effective tax rates.
Americans have never tolerated that level of taxation, not even at the height of World War II which most Americans believed was a matter of survival. If the taxes she wants fall mainly on “the rich”, how will she prevent them from fleeing to avoid the tax? I strongly suspect that even the members of the Business Roundtable pledging their fealty to stakeholders will avoid or evade taxes to the greatest extent of their powers which are considerable.
In my view taxes are a cultural issue. Some countries, e.g. Denmark, Sweden, have a tradition of consensus and cultural solidarity and don’t find their high levels of taxation onerous. They are convinced they can trust their countries’ bureaucrats and elected officials not to enrich themselves at the taxpayers’ expense.
Our situation is almost the opposite. I suppose we could just issue ourselves the credit to pay for all of the extravagant, ill-considered plans but that has implications. At some point the Chinese will tire of accepting ever-shrinking dollars for actual goods. At some point Americans will lose confidence in the dollar.
A couple of points about the Scandinavians.
Firstly, much of the high tax burden is indirect taxes (harder to evade), and second it hits the middle class who lack the money to pay for complex financial arrangements designed primarily to avoid tax, or to simply pull up stakes and move somewhere friendly to rich people. Sure, they can easily move elsewhere in Europe, but the taxes are equally as high and the government services often not as good, which leads me to my second point: they believe they get value in return, and generally government agencies in these places are not only honest, but well run (I don’t think Swedes joke about their DMV.)
The US government spends a similar percent of GDP on healthcare as other OECD countries, and private spending is as much again, and still a significant proportion of the population lacks coverage. What person in their right mind would tip even more money into such a system?
Providers, who are on average more highly compensated than in European countries. Politicians who believe they will get credit for giving people something they don’t presently have. People who think that other people should pay for the goods and services they receive.
As alluded to above, a VAT might be accepted. However, we really dont have a history of candidates doing much to explain how they are going to pay for what they propose. That doesn’t come until they have to put it into legislation. That is why most plans just remain plans and campaign promises.
Remember that we could save money on overall medical spending if we just converted to current Medicare. Would people object lower overall spending if it meant they had to pay higher taxes? Probably. Candidates are already pulling back from the extravagant M4All so I dont really expect more than a public option.
Steve
Little OT but link to nice paper on transparency. To date, transparency alone has had little effect on costs. When you add a second factor, in this case reference pricing, you have some success.
https://www.mitpressjournals.org/doi/full/10.1162/ajhe_a_00118
Steve
We also don’t have a history of such laundry lists with costs that run into the trillions of dollars. Sen. Warren has spoken of an “ultra-millionaires’ tax”. I’m curious about how she will ensure that they pay it.
We do have a long history of nominal tax rates being far in excess of effective tax rates and ballooning deficits as far as the eye can see so it’s not an idle question. BTW, don’t blame me for Trump’s deficits. I didn’t vote for him, I opposed the cut in the personal income tax, and I wanted to reduce spending on our far-flung military operations.
Also, I have a long history of supporting a VAT, prebated to render it graduated (something European countries do not do which makes their tax systems more regressive than ours), to REPLACE the present income tax system. However, I know of no country as dependent on consumer spending as the U. S. to have imposed a VAT and I’m a bit concerned about its full economic implications. I would also insist on any VAT covering services as well as goods, something that lawyers, just to name one notable group, have bitterly opposed. IMO failing to allow the VAT to cover services would be a subsidy to those who provide services rather than selling goods and picking winners and losers marks the death of fairness in any tax system.
Steve:
That’s an interesting paper. It should certainly give those who believe in market-based solutions something to mull over.
The only thing to mull over is how correct we are.
To use an example of, say, car shopping, just publishing the price of a $42k Jeep Grand Cherokee doesn’t get one far. But if you see that a dealer down the street is selling a similarly decked out Jeep for $1500 less you know where the car buyers are going to go. And if a company offered a company car but told you if you go to dealer Y and their price is $43K and the extra $2500 is on you, well, you know the result there. That’s all the paper is pointing out. It shouldn’t be that hard a concept.
The paper uses imaging as an example because of its relatively uniform utility. The complication comes in assessing physician quality. But that’s no different than buying Allstate insurance vs Fly by Night insurance, or Morton’s Steakhouse vs Ponderosa. We seem to make those judgments without bringing the nation to the brink of financial calamity.
Drew- We had already tried transparency as you describe it. A pt could go online and see how much a procedure costs at many different places. Just seeing the prices alone was not enough motivation to change their purchases. Remember that there are co pays on almost everything, so patients were going to pay more out of pocket if they ignored prices and went wherever they wanted. With reference pricing they knew they had to pay the difference between the reference price and whatever they chose. You can set the reference price so as to promote people to do more shopping. You are going beyond just competing on price.
Steve