Universal HealthcareBy NextBestFit
Phase 1: Enactment & build · Step 1.12

Set up the new taxes

Months 0–18 · Treasury, IRS, SSADiscuss this step

Pros & cons of this step

Pros
  • +Uses existing payroll and withholding infrastructure: no new collection system.
  • +Visible, dedicated health taxes make the trade explicit: premiums are gone and this replaces them.
Cons
  • −Big new taxes are politically toxic even when they replace bigger premiums.
  • −The $250k payroll exemption creates an incentive to split firms (anti-abuse rules needed).
  • −Top-end taxes are the most uncertain revenue: avoidance and behavioral response.
  • Progressivity vs. revenue stability: top-end income is volatile and falls sharply in market downturns.
medium confidence

Taxes vs. premiums

Premiums and out-of-pocket costs are replaced by visible taxes. Most households pay less in total, while high earners and non-offering employers pay more. Total national spending changes far less than the federal budget does.

Today
Premiums function like a hidden, flat per-person tax: a $27,000 family premium is the same for a $60,000 worker as for a $600,000 one.
Under the plan
Federal health spending (sponsor view) rises from $1.65T to $1.73T, and households pay income-based premiums and taxes instead.
Who gains
  • Low- and middle-income households
  • Seniors
  • Employers that offered coverage
Who loses
  • High-income households
  • Employers that didn't offer coverage
  • Young healthy workers with high incomes

Magnitude: See the households page.

Mitigations
  • $250k payroll exemption for small employers
  • Household premium exemption
Risk that remains: Tax increases are politically harder than premium increases even when smaller.
low confidence

Effects on the wider economy

Moving most health spending from premiums to taxes changes incentives across the economy: work and hiring (higher marginal tax rates vs. no job lock), business formation, wages, and federal borrowing during the transition. CBO lists these economy-wide effects as a core consideration.

Today
Premiums act as a fixed per-worker cost that discourages hiring low-wage workers and full-time positions (the ACA's 30-hour rule), and job-based coverage locks people into jobs.
Under the plan
Health costs become proportional to payroll and income. Marginal tax rates rise, especially at the top; per-worker fixed costs disappear; coverage no longer depends on work.
Who gains
  • Low-wage and part-time workers (no per-head premium cost to the employer)
  • Entrepreneurs and people changing jobs
  • Labor-intensive businesses that offered coverage
Who loses
  • High earners facing higher marginal rates
  • Capital owners facing the capital-gains change
  • Businesses that never offered coverage

Magnitude: Not modeled in the ledger. Higher marginal rates reduce labor supply somewhat; ending job lock and per-worker premiums raise mobility and part-time-to-full-time conversion. Studies of Medicare for All find small net GDP effects whose sign depends heavily on financing.

  • CBO (2019)
    Lists effects on labor supply, the economy, and federal borrowing among the key considerations for a single-payer system.
    Sources: Congressional Budget Office (2019)
  • Europe
    Countries with payroll-financed universal systems (Germany, France) have high labor-force participation among prime-age adults, so payroll financing is compatible with strong employment.
    Sources: OECD (2025)
Mitigations
  • Payroll exemption for small employers
  • Phased tax increases
  • No cap on the employer tax base, keeping rates lower
Risk that remains: Labor-supply responses to the top-end taxes could be larger than assumed, lowering revenue and growth.

Trade-off behind each cost item

Trade-off behind each system change