Did Democrats Unveil a Plan for a 42% Sales Tax to Pay for Medicare for All?

An independent think tank did suggest that a 42% value added tax would be one way to pay for Medicare for All.

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Claim

U.S. Democrats announced a plan for a 42% sales tax to pay for Medicare for All.

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Origin

Several of the Democratic 2020 U.S. presidential candidates — namely Sens. Bernie Sanders, D-Vt., and Elizabeth Warren, D-Mass. — have been running on platforms that include a plan for Medicare for All. The cost of a such a program would be substantial, and the candidates have wrestled with different ideas on how they plan to pay for it. 

On Oct. 29, 2019, some social media users came across an article that apparently led them to believe the Democratic candidates had come to a consensus on how to pay for Medicare for All: a 42% sales tax. 

Democrats have not announced a plan for a 42% sales tax to fund Medicare for All. This idea is based on a misleadingly titled news article concerning a proposal from the Committee for a Responsible Federal Budget (CRFB), an independent public policy organization.

Yahoo Finance published an article entitled “The Democratic plan for a 42% national sales tax.” The story, however, did not actually deal with a “Democratic plan” for a 42% national sales tax. Rather, the article concerned a paper that CRFB published regarding possible methods to pay for universal healthcare.

The CRFB estimates that Medicare for All would cost about $30 trillion over the next decade. The organization found that this program could be funded through a variety of methods, including a 42% value added tax (VAT), which the Yahoo article incorrectly labeled a “sales tax.” 

Here’s an excerpt from the CRFB report that lists eight possible ways to fund Medicare for All:

Proposals to adopt single-payer health care in the United States have grown in popularity in recent years, as numerous lawmakers and presidential candidates have embraced Medicare for All. However, few have grappled with how to finance the new costs imposed on the federal government. By most estimates, Medicare for All would cost the federal government about $30 trillion over the next decade. How this cost is financed would have considerable distributional, economic, and policy implications.

In the coming months, the Committee for a Responsible Federal Budget will publish a detailed analysis describing numerous ways to finance Medicare for All and the consequences and trade-offs associated with each choice. This paper provides our preliminary estimates of the magnitude of each potential change and a brief discussion of the types of trade-offs policymakers will need to consider.

We find that Medicare for All could be financed with:

  • A 32 percent payroll tax
  • A 25 percent income surtax
  • A 42 percent value-added tax (VAT)
  • A mandatory public premium averaging $7,500 per capita – the equivalent of $12,000 per individual not otherwise on public insurance
  • More than doubling all individual and corporate income tax rates
  • An 80 percent reduction in non-health federal spending
  • A 108 percent of Gross Domestic Product (GDP) increase in the national debt
  • Impossibly high taxes on high earners, corporations, and the financial sector

The CRFB also notes that Medicare for All could be funded by combining any of the above-mentioned plans. 

To reiterate, the above-displayed proposals were put forth by an independent think tank, not the Democratic Party. Furthermore, the CRFB suggested a 42% value added tax (VAT), a tax that is collected at every stage of the supply chain, and not a “sales tax,” as reported by Yahoo Finance, which is only collected by the retailer when an item is sold to the consumer. 

Reuters explained the difference between these two taxes:

Sales tax is collected by the retailer when the final sale in the supply chain is reached via a sale to the end consumer. End consumers pay the sales tax on their purchases. Businesses issue resale certificates to their sellers when buying business supplies/inputs that will be resold since sales tax is not due. Tax jurisdictions do not receive the tax revenue until the sale is made to the final consumer.

VAT (Value-Added Tax) is collected by all sellers in each stage of the supply chain. Suppliers, manufacturers, distributors and retailers all collect the value added tax on taxable sales. Suppliers, manufacturers, distributors, retailers and end consumers all pay the VAT on their purchases. Businesses must track and document the VAT they pay on purchases in order to receive a credit for the VAT paid on their tax return. Tax jurisdictions receive the tax revenue throughout the entire supply chain as opposed to at the sale to the final consumer chain.

The Yahoo Finance article took one of several proposals offered by an independent think tank, incorrectly described it, and then erroneously presented it as if it were the “Democratic plan” in their headline. 

While several of the 2020 Democratic presidential candidates are running on platforms that include Medicare for All, they all have different strategies on how to implement such a universal health care system. Furthermore, as of this writing in October 2019, many of the candidates have not put forth concrete plans on how they would go about paying for such a program. 

Sanders, for instance, has suggested several possible methods to pay for Medicare for All, including: a 7.5% income-based premium paid by employers; a 4% income-based premium paid by households; savings from health tax expenditures; making the personal income tax more progressive; making the estate tax more progressive; establishing a wealth tax on the top 0.1 percent; imposing a one-time tax on currently held offshore profits; imposing a fee on large financial institutions; and closing various corporate loopholes.

Warren has hinted at similar ideas and said on Oct. 20, 2019, that she would soon be releasing her plan on how to pay for Medicare for All: 

“This is something I’ve been working on for months and months, and it’s got just a little more work until it’s finished… But there’s the promise I make to you, and make every chance I get. And that is, I will not sign a bill into law that does not reduce the cost of health care for middle class families, because it is the cost of health care that is hurting families.”

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Sources

Yrjanson, Carla.   “What is the Difference Between Sales Tax and VAT?”
    Thomas Reuters.   9 October 2019.

Greenberg, Jon.   “Elizabeth Warren’s Plans: $7 Trillion in New Spending Over 10 Years, Before Medicare For All.”
    Politifact.   23 October 2019.