Sanders' basic argument against the newspaper articles characterizing his health plan as needing a $15 trillion tax increase has been that we shouldn't think about tax rates alone but should ask the broader question of whether people are better or worse as a whole after the program goes into effect.
If a single-payer health plan lowers health costs overall then his reasoning says that the taxes we raise for the health plan will be less than what people currently spend on health care and if we concentrate those taxes on the rich, then a typical person could actually be better off after the tax than they were before.
As a theoretical matter, that's not wrong. We should try to make that kind of calculation when we think about government programs. The thing is, though, that argument does rely quite heavily on the economic notion of "pass-though". Oversimplifying here: the Sanders health essentially plan puts all current health costs onto the government but will pay for it with cost savings and with taxes including a payroll and income taxes around 9%. Doing that frees companies from their currently massive health care costs. The Sanders plan counts on the employers then passing all of that savings though to their employees in the form of higher wages (and not keeping part of it as higher profits). If the companies don't pass it on, then, for sure, workers will end up worse off because they will pay the 9% payroll and income taxes but not have higher incomes to compensate (remember that employers pay about 75% of the normal health insurance premium for their workers so their savings on the employee contribution for health care will not normally add up to anything close to the 9% tax hike they're paying. They need the employer to pass on the other 75% to them).
So you need to decide whether companies would pass through the savings to employees. Would they? Many economists trust that markets would pass it through. Ironically, many of the Democrats that, like Sanders himself, have called for a repeal of the "Cadillac Tax" on expensive health insurance plans have implicitly presumed the opposite. They fear that the Cadillac tax will lead companies to reduce or eliminate generous health care plans without raising employee's wages in return.
But even with complete pass through, there are some significant low and middle income groups that would face net tax increases under a Sanders health plan. Generally, people that currently pay less than 9% of their income on health insurance will be worse off under a plan with free health care but a 9% tax to pay for it. That makes me think the plan hasn't been well thought through.
Almost anyone with low or moderate income getting insurance through the Obamacare exchanges, for example, will have health premia capped at rates below the Sanders 9 percent tax. A typical non-smoking family of 4 making with an income of $50,000 per year would have to pay in excess of $1000 a year more in taxes under the Sanders plan than they pay now for health insurance in the exchange [. . .]
People on Medicaid have caps on their health insurance cost at around 5% of income. So the working poor would face a net tax increase of 4% of their income. Kids with jobs but that can stay on their parents' health care plans up to age 26 under Obamacare would have to pay 9% of their income in taxes with Sanders' plan but without getting any upside from the government paid health care (though their parents would get some part of it back, depending on what they pay for the incremental coverage for the child).
I'm sure there would be other groups, too, if we worked through the numbers. His plan seems likely to hit a lot of people with tax hikes that it probably didn't intend to hit. If the employers don't pass on their savings to raise wages, it will hit all workers.
Emphasis supplied.
Something to consider.
