Supporters of single-payer must explain how to pay for it

Healthcare costsSince the best feature of the Healthy California Act is that all health care will be free, it seems churlish to suggest that someone must pay for something.

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Sadly, even after asserting more than $70 billion in new savings from efficiencies that highly motivated private providers and government regulators have not achieved, and after assuming that federal authorities will hand over about $150 billion in program funding and tax subsidies for use by state health care officials, the academics hired by program proponents find that revenues still fall short by $106 billion.

That’s in year one. Before health care inflation kicks in and utilization of free health care services metastasizes. An analysis of the measure by the author’s own staff found that, “Given all the factors that would make utilization management difficult, a 10% utilization increase is likely a conservative assumption.” That translates into tens of billions annually in higher health care costs.

So how does one resolve an annual $106 billion hole in the state’s health care budget?

  • Double the personal income tax? Nope. That will only bring in $89 billion.
  • Quadruple the state sales tax? Nope. That will only bring in $98 billion.
  • Ok, increase the corporate tax by eight-fold. Sorry, that’s just $87 billion.

But California already is a tax machine. This can’t be that hard.

Actually, it isn’t that hard, if you’re willing to dive deeply into the dumpster of discarded ideas.

Voila! That’s where you’ll find the gross receipts tax, the revenue stream preferred by academics supported by the bill’s union sponsors.

A gross receipts tax is levied against the receipts of a sale by a business of a product or a service. According to the Tax Foundation, “gross receipts taxes are largely a historical novelty to the developed world because it is a singularly unsuitable tax for the modern age.” It is economically inefficient, inequitable, and nontransparent.

The tax is not based on profits, wealth, measures of income, or any other indicator of consumption power that is the signal feature of most taxes in modern developed economies.

The tax gives a competitive advantage to bigger businesses that can make their own inputs rather than buy them. As taxes get added to the various stages of production they “pyramid” into the final price, so that the effective tax rate on goods exceeds the tax rates presented to final consumers. Businesses that must pass through this pyramided rate are less competitive than businesses that can integrate value added processes internally.

For the most part, the gross receipts tax is an artifact of history, trendy about a century ago, but abandoned by much of the world for a very long time.

A handful of states have retained versions of a gross receipts tax at very low rates, mostly far less than one percent of sales.

But even more states are abandoning this archaic tax. Indiana, New Jersey, Kentucky and Michigan all repealed their gross receipts taxes within the past 15 years. Even progressive Oregon voters swamped a gross receipts tax at the polls last year.

It takes a tax that bad to support the single-payer plan in California.

The putative rate for the California gross receipts tax would be 2.3 percent, about the same as the 2.5% tax that lost by 19 points in Oregon last year. (Only one state has a gross receipts tax anywhere near this rate, that’s on radioactive waste by Washington state.)

But wait, there’s more.

According to the academics, even a 2.3% gross receipts tax is not enough to close the funding gap for single-payer. (It “only” raises $92.4 billion.) So sponsors also suggest a new sales tax to top up revenues – not only on goods but on many services. This new tax – also at a 2.3% rate – would raise $14.3 billion, the equivalent of a 58% increase of the existing state sales tax.

Still … this may not work.

Implicitly acknowledging that their multi-layered sales tax mechanism may be a nonstarter, the academics suggest a payroll tax as a fallback revenue source to replace the gross receipts tax. While they believe a gross receipts tax is the superior mechanism because it “does not discriminate in its impact between labor-intensive and capital intensive firms,” they nonetheless calculate that a payroll tax paid by both employees and employers at a 3.3% rate would raise sufficient taxes to replace the gross receipts tax and fill the revenue need.

Existing payroll taxes for Social Security, Disability Insurance, Unemployment Insurance are capped at certain wage levels. This new payroll tax would not be capped – similar to the payroll tax for Medicare. The Medicare tax is 1.45% of payroll for both employers and employees, so this new payroll tax would be the equivalent of more than doubling the existing Medicare tax – which taxpayers would continue to pay even if Medicare spending is consolidated with the single-payer plan.

To conclude, under the most absurdly favorable circumstances – never-before achieved cost savings, minimal health care inflation and utilization increases, and enthusiastic cooperation by federal officials – a single-payer plan would require either an untried and economically unsound gross receipts tax, a new sales tax on services, or an record state-level payroll tax.

Yet somehow the single-payer bill is still considered a serious proposal.

resident of the California Foundation for Commerce and Education.

This article was originally published by Fox and Hounds Daily


  1. Pay for it?
    I thought the doctors and nurses were all going to volunteer their services?

    • Only reason they are pushing this is they know Trump will turn it down since it demands he turn over Medicare and Medicaid to California politicians. Just a set up to make Trump look like the villain.

  2. The lamo who came up with this has snorted more than his fair share of fairy dust. Hey DUDE! Pass the bowl!

  3. Patton'sGhost says

    Thank you for publishing these daily reminders that even though I miss our friends in California, I give thanks daily that I am now free of this insanity in governance.
    Between Jesuit Jerry advancing his “green jihad” and the Hispanderers (De Leon, Lara, Rendon, Gonzalez Fletcher, et al) trying to give away benefits in exchange for motor voter votes, the California economy is swirling around the bowl faster and faster…
    Sadly, I and my conservative friends see no way out until the whole scheme implodes when jobs dry up and there are violent uprisings when the “free benefits” cannot be provided & fiscal insolvency results…
    It’s gonna get uglier, folks….
    Enjoy the mild climate, though…

  4. Raise taxes on business then businesses leave. Funding becomes more difficult. Free healthcare for everyone, including illegals, will provide an influx of desperate citizens from other states and citizens of Mexico. Unfortunately they will provide little tax revenue. But hey, go for it, maybe Cali will come up with something. They’re way ahead of the rest of us I heard them say. It will be interesting when these adolescents come to realize what the adults have been trying to tell them for decades: great idea – now how are you going to pay for it?

  5. This was created as a distraction for the 52B gas and registration tax increase that starts on July 1, 2017. This is also an attempt to make all illegals think they’re going to get no questions asked free health care courtesy of the democrats. Chances are good the free thinker that came up with this _#@$$%@&&$ is going to be termed out one way or the other and was offered some sweet cush do nothing job as payment for sticking his willie out.The theory is, if you’re already pissed off this should really cause a flood. Its a combination of buying votes(even if its never realized) and LOOK!!!!! Now heres the kicker, If by some act of providence this ever sees the light of day, there are a ton of people in this state who would vote to put the same people back in power.

  6. Victoria Smith says

    When will folks figure out that someone is going to pay, and that in fact, it all trickles down, eventually, so that everyone is hurt by these ridiculous, government is the end all to all our needs. People have made government into a god and there is only one God, who is able to do all things.

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