CALTAX COMMENTARY:
Costly 'Single-Payer' Bill Is Fatally Flawed Even Under BestCase Scenario

By Peter Blocker, CalTax Legislative Advocate

We can all agree that the cost of medical care is a large financial burden for many individuals and families in this country, and reducing this burden should be a top priority.

There are many theories and proposals about the best way to achieve this goal. While some believe every American should be required to buy health insurance, others propose doing away with insurance companies entirely. Some propose requiring insurers to cover more ailments, while others propose reducing costs by allowing insurers and consumers to pick from a wider range of coverage options.

There may be some debate about which approaches might work best, but we should all be able to agree that the latest proposal moving through the Legislature – the proposed “single-payer” legislation (SB 562) introduced by Senator Ricardo Lara at the behest of the labor union that represents nurses – won’t work.

While the senator’s intentions are good, his take on the old single-payer concept is really a prescription for massive tax increases that would drive businesses out of California and lead to job losses.

The most glaring problem is the cost, which the Senate Appropriations Committee pegged at $400 billion per year. The committee said the state would have to impose a tax hike of at least $200 billion per year to make the plan work. A different estimate – commissioned by the proponents of the bill – said the state would need to raise taxes $106 billion per year. That’s a $94 billion difference in estimates, and if that’s not bad enough, a professor of health research and policy at Stanford University said those estimates are on the optimistic side, so it is likely that the tax increases would be even higher.

This uncertainty is reason enough for the state to quickly walk away from the single-payer proposal.

Even assuming the proposal would require “only” $106 billion per year in taxes, it should be a non-starter. To put such a tax increase in perspective, it would represent a doubling of the current revenue collected from the personal incomes tax and sales tax combined, in a state that already has some of the highest tax rates in the nation.

And the $400 billion price tag would mean that in one year, the program would cost about $28 billion more than the state will spend during the next three years on everything in its current budget – schools, prisons, courts, freeways, trains, water … everything.

That is under the best-case scenario, using the estimate from the committee that Senator Lara chairs. Government programs almost always go over budget, so it is likely that the $400 billion would grow by leaps and bounds – especially if people from around the country flocked to California, lured by visions of free medical care for whatever ailments they have or might get.

Senator Lara has not specified what taxes he would increase to pay the huge cost, but suggestions have included a payroll tax, a massive sales tax increase and a new tax on businesses’ revenue. Any of these would have a devastating impact on California’s business tax climate – already third-worst in the nation, according to the Tax Foundation of Washington, D.C. – and would encourage employers to move jobs to states with lower costs.

The taxes also would increase the likelihood that wealthy Californians would move to cheaper states. Since the state’s top 5 percent of earners currently pay 68 percent of the personal income tax revenue, this could lead to a big drop in the state’s largest source of revenue.

Of course, these aren’t the only problems. Whose care would get cut when the state experiences budget problems? How would the huge tax increases square with Proposition 98, the constitutional requirement that schools get a large percentage of all new state revenue? What about the Gann Limit, which requires that revenue in excess of a specified appropriations limit be rebated to taxpayers?

Simply put, there are too many costs, too many risks and too many questions associated with SB 562. This single-payer bill is a singularly bad idea for California.

 

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