February 03, 2016

Bernie Sanders' plan to pay for single-payer system doesn't add up, bipartisan group says

Presidental candidate's plan estimated to fall $3 trillion short on paying for universal health care

Presidential candidate Bernie Sanders has won a devoted following over his soaring promise to institute a single-payer health care system that covers everyone in America. He has admitted that his "Medicare for all" plan comes with a price tag of $13.8 trillion over 10 years but has said that the net cost would be far less than what Americans pay for their current, wasteful system.

Where would he find that $13.8 trillion, though? The Committee for a Responsible Federal Budget, a bipartisan think-tank based in Washington D.C., did some back-of-the-envelope calculations on Sanders' plan to pay for the single-payer system and determined that he's still short around $3 trillion.

"By our rough estimates, his proposed offsets would cover only three-quarters of his claimed cost, leaving a $3 trillion shortfall over ten years," the committee wrote in a "fiscal fact check" published on Wednesday.

The CRFB's calculations were based on methodology used by the Congressional Budget Office to estimate tax revenue. While Sanders has outlined his plan for paying for the single-payer system, the committee wrote that he overstated how much revenue he could wring out of tax increases.

For example, Sanders estimated that a 6.2 percent payroll tax (paid for by employers) would raise $6.3 trillion over 10 years. The CRFB estimated that it would raise a trillion dollars less.

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The committee found this shortfall even though it made several assumptions in Sanders' favor. It assumed that the plan would cost no more than he said it would, and that people wouldn't change their behavior too drastically in response to the taxes.

"Even our estimates of the Sanders plan are likely overly optimistic as they do not account for economic effects or any additional behavioral effects beyond those from a small tax increase," the committee noted.

Another issue is that Sanders would tax capital gains (profits from selling investments like stocks or real estate) at the same rate as regular income for people making more than $250,000 a year. 

That tax is supposed to raise $900 billion a year. Sanders has argued that it is unfair that billionaires like Warren Buffet who get most of their income from investments are taxed at a lower rate than people who get most of their income from a salary.

However, taxing capital gains too much could possibly lead to a revenue loss. Investors might be less willing to sell their assets, and the government would then collect less. Since it was unclear if the tax would lead to a loss or gain in revenue, the CRFB assumed that the tax would have no effect.

"The bottom line is that while significant revenue can be generated from high earners, there are limits. And at least when it comes to rate changes, the Sanders plan appears to blow past them," the committee wrote.

The committee also estimated that under Sanders' plan, the national debt would become equal to America's entire gross domestic product (GDP) by 2026. To put that in context, right now it's projected to be 86 percent of the GDP by that date.

Most of Sanders' proposed tax increases only affect people who make more than $250,000 a year. However, two taxes apply to everyone: a 6.2 percent payroll tax (paid for by employers) and a 2.2 percent income tax. Families with income under a certain limit could use a standard deduction to avoid the income tax increase.

Middle-class Americans would still save money because they wouldn't have to pay for health insurance, Sanders has argued. His website claims that a typical middle-class family would save more than $5,800 a year, and the average business would save more than $9,400 a year. 

Read the fiscal fact check here