In a floor speech in the Vermont Senate on March 27, 2014, Senator Galbraith explained his bill to fund Vermont’s single payer health care system and why the delay in coming up with a financing plan is unjustified and damaging to Vermont’s economy.
Remarks on S.252
Senator Peter Galbraith
March 27, 2014
Mr. President:
S. 252, as introduced, is a financing plan for Green Mountain Care. I have distributed a handout describing the provisions of the bill. I will briefly explain the bill and then explain why I introduced this bill.
In its January 2013 Act 48 report, the Administration estimated that Green Mountain Care would cost $1.6 billion and so S.252 seeks to raise that amount. Since then the estimate has risen to $2 or 2.2 billion and I will discuss later how that might be raised.
Both the underlying bill and the committee amendment establish a number of principles for a Green Mountain Care financing plan. These include the principle that everyone contributes according to her or his ability to pay and that payments should be related to service received. In short, that no one should see a $100,000 tax bill to pay for health care.
The underlying bill has three taxes:
- A payroll tax of 11% on the employer and 2% on the employee. This raises about $1.45 billion.
- A 10 % tax on the amount of non-wage income that exceeds wage income. This intended to capture income from individuals who live on unearned or out of state income but who will be included in GMC. This raises about $100 million.
- The elimination of the pass through of federal itemized deductions to Vermont taxes. The pass through primarily benefits high-income taxpayers and most states with an income tax do not allow the pass through. This raises about $65 million.
Most of the revenue in the underlying bill is raised by the payroll tax. There are two reasons for this. First, a payroll tax divided between employers and employees mimics the current system of financing health care where both employers and employees pay premiums. Thus, a payroll tax causes less disruption than any other revenue source.
But, the second reason for choosing a payroll tax is more important. A payroll tax paid by the employer is a deductible business expense to the employer. Depending on the tax status of the employer, the value of this deduction could range from nothing (if the business were never profitable) to 39%. Overall, it is a fair estimate that, if we go with a payroll tax, the federal government will pick up at least 25% of cost to Vermont employers of Green Mountain Care. Thus an 11% payroll tax would have an effective rate to employers on average of 8.25%. No other revenue source has this implicit federal subsidy.
Now, let me turn to the question of why I introduced the bill.
Green Mountain Care is biggest and most expensive project ever undertaken by the state of Vermont. It is an undertaking on the order of magnitude of creating from scratch a public education system or the social security system. To pay for Green Mountain care, Vermont will have to enact the largest tax increase in Vermont history but it is a tax increase that will save Vermonters money. Overall Vermonters will save more in premiums and expensive services (such as emergency room care for the uninsured) than they will pay in taxes.
Raising the approximately $2 billion needed for Green Mountain Care is a big decision, but not necessarily a complicated one. In fact, the very size of the amount that needs to be raised greatly reduces our options and therefore simplifies our choices.
There are four taxes — and only four taxes — that can raise $2 billion. These are (1) a payroll tax, (2) the income tax, (3) the sales tax, and (4) a capitation tax, or mandatory premium. I asked the Joint Fiscal Office (JFO) to prepare a chart showing how much each tax would have to go up to raise $2 billion:
- Using just the payroll tax, we would need a rate of 17%.
- If we used just the income tax, we would have to start the tax with a 33% bracket and a top rate of 39%.
- If we used just the sales tax, we would have to expand the tax to cover food and clothing and we would need to set the overall rate at 29%.
- If we use just premiums, every Vermonter not excluded from Green Mountain Care will have to pay an annual premium of $5200.
- If $500 million were raised from each source, it would require a payroll tax of 4.25%, a public premium of $1,325, a 7.5% increase in the marginal rates in the income tax, and a 5.75% hike in the sales tax to 11.75%
Because there are so few choices, it is not hard to come up with a workable plan to finance Green Mountain care. The hard part is having the political will to do it.
If the experience of every other industrialized country is a guide, universal publicly financed health care will be significantly less expensive than our current system of paying for health care. But, it will be substantially more expensive for some people and that is the dilemma.
If we use just the payroll tax, we will add 17% to the bottom line of the many Vermont businesses that do not now offer health care. We will alienate our largest employers, who are self-insured and who would see their costs rise as their employees get the superior Green Mountain Care benefits. If we hike the income tax by adding 30% to each tax bracket, we will alienate almost everyone. We will certainly alienate the state’s highest earners who could face a combined state and federal tax rate of 78%. European countries have a sales tax (called the VAT) that ranges from 20 to 25%, so a 29% sales tax is not impossible — except that we are not our own country. Vermont retailers will fiercely oppose a hike in the sales tax. Everyone who has good health care will oppose the mandatory premiums.
I see no sign that Administration or the legislature is prepared to support tax hikes of the kind I have outlined. The Administration declined to present the plan required by Act 48 in January 2013 and more recently the Governor declined to share his administration’s ideas with the legislature, although he had said he would do so.
I have sympathy for our executive. There is no financing plan that will not alienate large parts of our business community and many other Vermonters. Around Montpelier, the raised voices of a disaffected minority always seem to count for more than those of a silent majority who might benefit. In the case of any plan to pay for Green Mountain Care, the disaffected minority is sure to be numerous and loud. So, it is easy to understand why no plan has been put forward.
But, Mr. President, not having a financing plan also has economic consequences.
I have spoken with several of our largest employers. They say that uncertainty about what they will have to pay for health care affects their investment decisions for Vermont. Imagine a company with a $200 million payroll. That company doesn’t know whether or not it will have to pay $34 million in taxes on a $200 million in payroll is not likely to make new investments in Vermont. That is a lot of uncertainty. And, the company might be reluctant to invest in a state if it doesn’t know the income tax rate on its highest paid employees — the very ones who make investment decisions.
Many of my constituents strongly support universal publicly financed health care. But, they are anxious about how it might affect them and this is especially true of older Vermonters who live on fixed incomes. We have an obligation as public servants to alleviate that anxiety, and we can alleviate it.
We should end the uncertainty that is undermining our economy. Green Mountain Care might make Vermont attractive to certain kinds of companies, indeed to the socially responsible companies that we would love to have here. But, it is hard to make investment decisions if you don’t know whether if there will be Green Mountain Care and how it will be paid for.
Let us be honest with our constituents. If we are not willing to raise $2 billion — if we are not ready for a payroll tax, for a doubling of the income tax, for a doubling of the sales tax and for a premium tax — let’s say so.
Pretending we don’t know how to raise $2 billion is a poor excuse for ducking a tough decision and disservice to the people of Vermont.
Peter W Galbraith 