What began with a bang in 2011 ended with a whimper last month when Governor Peter Shumlin tabled legislation that would have brought the nation’s first tax financed, unified health system to the state of Vermont.
Shumlin, who narrowly won reelection in a too close to call race by vote of the Legislature, was greeted in his inaugural address by the jeers of single-payer advocates protesting his repeal of single-payer plans.
Why did the Governor drop his signature health care legislation?
According to Shumlin, the answer is clear- it’s the financing stupid. The tax rate that would have had to be imposed to finance the system was too high requiring an 11.5% payroll tax on all Vermont businesses and a public premium assessment of up to 9.5% of individual income. These were tax rates that he could not he could not, in his words, “responsibly support or urge the Legislature to pass.”
However, what Shumlin failed to convey is that an 11.5% payroll tax, particularly where split between employer and employee is less than what most employers/ employees currently pay in health care premiums.
A previous report to the Vermont Legislature had found that a 14.2% payroll tax would be less than what the majority of businesses paid in premiums, and substantially less for many medium sized businesses. Likewise, income taxes, depending on how they are levied, can be designed to tax wealthier individuals at higher rates or more progressive capital gains taxes could have been adopted to finance the system.
Shumlin’s calculation that these tax rates would be unacceptably high for the Vermont public, rather than reflecting a prudent economic decision, instead reflects politicians’ circumspection that the American public does not understand how tax financing works and is unwilling to accept publically financed tax based systems.
Rather than selling the point that progressive tax financing would replace the current regressive premium based financing (creating a net benefit for the average American), the Vermont Governor shield away from public financing of health coverage.
Underlying Shumlin’s concern is an assumption that the American public, and even the more liberal than average Vermont public, are opposed to progressive tax based financing.
This same sentiment was recently brought to a head when Jonathan Gruber, a prominent health economist and one of the architects of both the ACA and Vermont’s single-payer plan, was brought before a congressional committee for his comments to the effect that the American public was stupid because if they truly understood how health reform was financed, the ACA never would have passed.
As Gruber explained to an audience at an academic conference:
“if you had a law… that made explicit healthy people pay in and sick people get money, it would not have passed… Call it the stupidity of the American voter or whatever, but basically that was really critical to get for the thing to pass.”
In other words, according to Gruber, the American public would never accept a redistributive financing mechanism that transfers resources from the rich to the poor and the healthy to the sick. The only way to pass such legislation is to pull the wool over the American public’s eyes.
However, an alternative interpretation is that American politicians are particularly bad salesmen when it comes to explaining tax based financing. Cynically, one could argue that this poor communication is purposeful cover for adopting policies that are in the interest of powerful business elites.
Alternatively, self-interested politicians may simply be thinking about their reelection prospects. Either way, what is all too absent in American politics is the willingness of progressive politicians like Shumlin to stand up for redistributive tax financed programs and convey the benefits to the median tax payer.
For universal health coverage efforts such as those abandoned in Vermont to survive and thrive, a new cadre of left leaning politicians who will not shy away from defending progressive tax financing will need to be groomed and elected.