Largest State Tax Hike Ever Was Likely Just A Down Payment For California’s Failed Single-Payer Health Plan – Forbes

As large as the $163 billion tax hike associated with the now defeated California single-payer … [+] health care bill was, further tax hikes would’ve still likely been necessary. Single-payer proponents admitted as much by lowering the threshold for future tax hikes.

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Members of the California Assembly, where Democrats hold a 16 seat majority, declined to vote on Assembly Bill 1400, legislation that would install a single-payer health care system in California call CalCare, before the January 31 deadline to pass such legislation out of the Assembly. The tax increases associated with that proposal would’ve amounted to $163 billion annually, roughly doubling state tax collections in California. 

For progressive lawmakers and activists who want to enact a national single-payer health care system, rejection of a state-level “Medicare For All” proposal in one of the bluest states in the nation, where Democrats have sweeping control of state government, is seen as a major set back. “Bigger picture: Single-payer failing to get a majority vote in a chamber where California Democrats had 16 votes to spare, in a state where Democrats overwhelmingly are in charge, is not a great augur for national #MedicareForAll push,” tweeted Politico’s California reporter, shortly after Democrats declined to vote on AB 1400. 

“We shouldn’t be surprised that even the state legislature couldn’t come up with the votes to pass a government-run health care program that would force Californians off their current coverage,” said Lanhee Chen, a candidate running to be California’s next comptroller. “After all, who wants to put some of the same bureaucrats who mismanaged our state unemployment insurance system in charge of our health care? But let this be a lesson: Californians won’t be fooled. You cannot claim to be providing people with something better while you take away their choices, raise their taxes, and fail to properly account for the billions of dollars that are already being spent on health care in our state”

In letting AB 1400 die, California Democrats didn’t just reject what would’ve been the largest state tax hike in U.S. history. They declined to vote on a proposal that would’ve also made it much easier to further raise state taxes in the future. As large as the tax hike associated with AB 1400 would’ve been, it was likely just a down payment, as another change in the package would’ve greased the skids for future state tax hikes. 

Right now, thanks to Proposition 13, California’s constitution requires state tax increases to be approved with a two-thirds supermajority vote of the state legislature. Aside from the immediate tax hike it would’ve directly imposed, enactment of AB 1400 and the associated tax package would’ve also changed state law to make it so the three new taxes imposed to fund CalCare — an income surtax, a new payroll tax, and a gross receipts tax — could be increased in the future with only a simple majority vote in the state legislature. That exemption from the supermajority requirement to raise taxes was seen by many as an admission that as large as a $163 billion annual tax hike is, CalCare backers recognize that it was likely still insufficient to fund the new entitlement. Failure of AB 1400 is perhaps the most prominent and certainly the most recent, but is not the only defeat for single-payer health care advocates in the states, as California legislators have abandoned previous single-payer bills due to high costs.

“This is not the first time California lawmakers have considered creating a single-payer health system, which previous estimates pegged as requiring $200 billion in additional state funding,” notes Jared Walczak, Vice President of State Projects a the Tax Foundation. “This assumes, moreover, that California secures federal approval to redirect approximately $200 billion in federal funding toward a health-care match, since the full cost of the program is about $400 billion per year. Even with that match, the numbers only balance if a single-payer system generates significant cost savings, an assumption that is, at minimum, controversial. And as with prior considerations of one-state single-payer proposals, there are questions of whether residents would still need health insurance to cover them while outside the state, depending on how the program is designed.”

California isn’t the only state, let alone the only blue state, where single-payer health system legislation has crashed and burned. New York Assemblyman Richard Gottfried (D), the longest serving member of the history of the New York Assembly, has long pushed for the New York Health Act, a single-payer proposal for the Empire State. Assemblyman Gottfried’s bill was approved by the New York Assembly five times between 1992 and 2018, only to see the state senate decline to take it up. As in California, exorbitant cost projections have been the main obstacle to single-payer’s enactment in New York. It was previously reported in this space that the New York Health Act “would consume all federal dollars that go to the state for public health care-related spending (Medicaid, Medicare, and Obamacare related credits) and still require legislators to more than double the state tax burden– already the highest in the nation.” 

Assemblyman Gottfried has announced he will retire after this year, creating urgency in Albany to pass his bill before he leaves. “There is nothing more important to me legislatively than passing the New York Health Act,” Gottfried said in a December 2021 interview with City & State New York. “I am hopeful and confident we can do it.” 

“I can tell you that I am going to work, like, double as hard – if doubly is a word – doubly as hard to pass it this coming year,” said New York Senator Gustavo Rivera, sponsor of the Senate version of the New York Health Act. “It would be the equivalent of giving (Gottfried) a grand-spanking new Rolex.” 

Passing single-payer in New York might be the equivalent of Rolex for Gottfried, but it would saddle New York taxpayers with the largest state tax hike they’ve ever seen. The Rand Corporation issued a 2018 report projecting that New York legislators would need to impose an additional $139 billion in higher taxes in 2022 and $210 billion by 2031 in order to pay for universal, state-run health insurance. A tax hike of that magnitude would amount to a 156% increase in total state tax revenue. While the California and New York proposals underscore the massive taxpayer cost associated with single-payer health systems, it is single-payer champion Bernie Sanders’ state of Vermont where state-level Medicare-For-All first proved to be unworkable.  

More than a decade ago, Vermont state lawmakers enacted legislation to implement a single-payer system called Green Mountain Care. That Vermont experiment is not heralded by progressives today because then-Gov. Peter Shumlin (D) pulled the plug on it in 2015. Shortly after the single-payer bill was enacted in 2011, Vermont officials were confronted with the reality that “free” health care is actually pretty costly for taxpayers. Governor Shumlin and Vermont lawmakers discovered they would need to impose a new 11.5% state payroll tax and a 9.5 percentage point income tax increase to pay for the new entitlement. Together these tax increases would’ve represented a more than 150% hike in the state’s income tax.

“In a word, enormous,” was how Shumlin described the tax increases necessary to fund single-payer in Vermont. “The bottom line as we completed the financing modeling,” Shumlin explained, “is that the risk of economic shock is too high to offer a plan I can responsibly support.” The Shumlin Administration found that spending would spike from $2 billion to $2.6 billion in 2017, rising to $3.2 billion by 2021. It was also projected that the program would run deficits by 2020, thus requiring the enactment of more tax increases.

By declining to vote on AB 1400, California lawmakers have once again demonstrated the high taxpayer costs associated with single-payer health care systems. But as New York and Vermont have also demonstrated, this is not a California-specific problem, but a general math problem. It remains the case that there has yet to be a single-payer health care proposal offered that has not also required enormous tax hikes to pay for it.