This Is How You Pay For It

Image Credit: J Pat Carter/The Washington Post/Getty Images, via CNBC.

The last few years have seen a wave of new aspirational policy proposals from progressive activists and lawmakers. In 2016, Bernie Sanders proposed free college education and brought the prospect of single-payer healthcare back into mainstream American politics for the first time in years. More recently, left-wing freshmen in congress like Alexandria Ocasio-Cortez have proposed bold ideas like a “Green New Deal,” a large package of environmental policies and infrastructure investments aimed at tackling the growing crisis of climate change head-on. 2020 contenders for the Democratic presidential nomination have discussed expansions of public housing, job guarantees, universal basic income, various anti-poverty proposals, and more.

As someone in favor of most of these proposals and at least sympathetic to others, I’ve been among the many young people who have found this expansion of the boundaries of political debate refreshing. That’s not to say that it hasn’t had its fair share of critics, however. Among the many critiques and policy considerations in this debate, one question seems to loom large over all of the proposals: “how will they pay for it?”

Quite often, this is a question posed in bad faith by those ideologically opposed to the policies themselves, serving as a thought-terminating cliche meant simply to shut off debate on any creative and transformative ideas for addressing major public issues affecting the American people. One can fill a book with the names of all of the political figures who supported the entirely unpaid-for Trump tax cuts but then seriously tried to offer “but how do you pay for it?” as a retort to another policy. But it is true that these programs will require rather significant amounts of government funding, and progressives would be making a mistake to dismiss this criticism entirely and avoid the issue. For every overpaid pundit reading talking points from a teleprompter on Fox News or CNBC, there are several voters genuinely curious about how we can finance such large programs in the face of the already-growing national debt.

Some progressives have turned to a heterodox school of economic thought known as modern monetary theory (MMT) to address this concern. To simplify a very complicated idea, MMT makes the case that any country with its own national currency can essentially issue sovereign debt with few limits by simply issuing more of that currency, and thus can spend until inflation becomes a large enough concern to put on the brakes. Though the theory does pose some genuine challenges to conventional thinking about public budgeting, and can even be seen as a corrective in some sense, it’s generally dismissed by economists as a whole for a number of reasons, primarily because it underestimates the threat of inflation just as much as many mainstream economists overestimate it. Though most of its adherents come from the left, MMT has faced blistering critiques from other leftists as well. Fortunately, where one falls in the debate on MMT doesn’t really matter for the debate on new progressive programs, simply because it isn’t needed to make the case for them.

There is no economic or logistical reason that the United States can’t afford single-payer healthcare, free higher education, a Green New Deal, and stronger social spending and welfare programs. A significant amount of revenue would need to be raised to do so, but the US economy (including money already being spent by the government which can be redirected) is more than large enough to meet that need, and doing so wouldn’t destroy the economy. In fact, a reorganization of government spending to better support the working and middle classes, provide high quality education and public services, and tackle an environmental crisis will almost certainly be an economic boon.

Let’s Get Fiscal

The United States has a lot of debt. About $22 trillion at the time of writing, and that number is only expected to grow in the future. For this reason, a lot of Americans are understandably concerned about annual deficits. But the U.S. budget and the process surrounding it is one of the most commonly misunderstood aspects of government, so let’s take a brief aside to establish some facts about where we are and how this all works. Don’t worry, this section gets more interesting and relevant as you get farther into it, but I won’t blame those who are really here for how we can pay for progressive programs for skipping this section.

The U.S. government takes in money every year from taxes, tariffs, fees, and so on (revenue) to pay for its organizations, programs, and services (expenditures). If it takes in more than it spends, it produces a surplus; this hasn’t happened since 2001. If it spends more than it takes in, it produces a deficit; this is the norm. When the size of annual deficits outsizes the size of annual surpluses over time (and they do), it creates a national debt. Put simply, we have a debt because we have spent more over many years than we have collected over that same time period.

The U.S. government is not you or me- by its very nature as a government, it doesn’t have to balance its checkbook at the end of every year. Because the U.S. is a country with a massive economy and a powerful and (relatively) stable government, it can issue large amounts of debt which investors can purchase in the form of bonds. Investors know that the money they spend buying U.S. debt is guaranteed to be paid back to them plus interest, so there’s always major demand for it. As long as that demand persists, the whole system keeps rolling.

If debt gets out of control, it can pose a number of problems. Too much debt can draw money out of the economy, as the investors who are buying the debt would have spent it elsewhere. Excessive debt can also raise interest rates (hurting the economy by making it harder for consumers and companies to get loans) and make government spending even more costly, funneling more money into interest payments on debt than would otherwise be needed. Plus, if investors truly lose faith in the ability of the government to repay its debt, the whole system falls apart. But here’s the thing: even as the U.S. has seen its debt grow over the last two decades, none of these things have happened. In fact, in some cases the opposite has occurred.

Larry Summers is one of the most preeminent economists in the world. He’s served as Chief Economist of the World Bank, Secretary of the Treasury under Clinton, President of Harvard University, and Director of the National Economic Council under Obama. Despite his time in Democratic administrations, he’s not exactly known as a left-wing guy, advocating for privatization around the world and for deregulation of Wall Street here at home. And yet, alongside Obama adviser and fellow Harvard professor Jason Furman, Summers recently wrote that our national debt hasn’t shown any signs at all of being a crisis:

The deficit reduction efforts of Presidents George H. W. Bush and Bill Clinton contributed to the investment-led boom in the 1990s.

Today, however, the situation is very different. Although government debt as a share of GDP has risen far higher, long-term real interest rates on government debt have fallen much lower… in 2000, the Congressional Budget Office forecast that by 2010, the U.S. debt-to-GDP ratio would be six percent. The same ten-year forecast in 2018 put the figure for 2028 at 105 percent. Real interest rates on ten-year government bonds, meanwhile, fell from 4.3 percent in 2000 to an average of 0.8 percent last year. Those low rates haven’t been manufactured by the Federal Reserve, nor are they just the result of the financial crisis. They preceded the crisis and appear to be rooted in a set of deeper forces, including lower investment demand, higher savings rates, and widening inequality. Interest rates may well rise a bit over the next several years, but financial markets expect them to end up far below where they stood in the 1980s and 1990s…

Low interest rates mean that governments can sustain higher levels of debt, since their financing costs are lower. Although the national debt represents a far larger percentage of GDP than in recent decades, the U.S. government currently pays around the same proportion of GDP in interest on its debt, adjusted for inflation, as it has on average since World War II… Although both real and nominal interest rates are set to rise in the coming decade, interest payments on the debt are projected to remain well below the share reached in the late 1980s and early 1990s, when deficit reduction topped the economic agenda.

Government deficits also seem to be hurting the economy less than they used to. Textbook economic theory holds that high levels of government debt make it more expensive for companies to borrow. But these days, interest rates are low, stock market prices are high relative to company earnings, and major companies hold large amounts of cash on their balance sheets. No one seriously argues that the cost of capital is holding back businesses from investing. Cutting the deficit, then, is unlikely to spur much private investment.

The fact of the matter is that debt has not produced any of the problems that fiscal conservatives expect it to, and indeed doesn’t seem to show signs of doing so in the future either. Those most vocal about the threat that the national debt poses to our economy have been wrong far more often than they’ve been right. Summers and Furman offer a pretty reasonable rule for the U.S. deficit moving forward: simply don’t add any more to it. Either pass policies which are deficit-neutral or shrink the deficit, but just don’t let it grow any more.

This is a surprisingly lenient diagnosis from a neoliberal figure who oversaw the budget balancing of the Clinton era. In fact, the budget deficit is so large right now that even a pinko like myself wonders if a more conservative approach is needed. Deficits are supposed to be countercylical, rising during recessions and shrinking during economic booms in order to help even out the peaks and lows of the business cycle. But we’re currently doing the opposite: the deficit has skyrocketed over the last couple of years even as the economy is quite strong, meaning our current fiscal policy is the opposite of what it ideally should be.

But even if you concede that the deficit should be shrunk, the sources you should target are not what you would traditionally expect. Deficit hawks like Paul Ryan have always focused on “entitlement reform”- code for spending cuts to programs like Social Security and Medicare whose costs are expected to grow in coming years as the Baby Boomer generation continues to retire. But the largest source of deficit growth in recent years hasn’t been those programs: it’s been tax cuts. Summers and Furman note:

The tax cuts passed by Presidents George W. Bush and Donald Trump totaled three percent of GDP — much more than the projected increases in entitlement spending over the next 30 years. Those cuts meant that in 2018, the federal government took in revenue equivalent to just 16 percent of GDP, the lowest level in half a century, except for a few brief periods in the aftermath of recessions. Without the Bush and Trump tax cuts (and the interest payments on the debt that went with them), last year’s federal budget would have come close to balancing. As things stand, however, the Congressional Budget Office projects that revenue over the next five years will continue to average less than 17 percent of GDP, a percentage point lower than under President Ronald Reagan. [Bolding mine]

The government isn’t overspending- it’s undertaxing. Tax cuts which overwhelmingly benefit the wealthy have driven our deficits to where they are today, along with a jump in military spending over the last several years. If you truly want to lower the deficit, it should be clear where to start.

Show Me The Money

Whew. That was boring, huh? Back to the good stuff. There’s lots of ways that we can pay for the host of progressive programs being discussed.

Let’s quantify the costs of some such proposals to get an idea of how much money we’re actually talking here. This is somewhat difficult since various competing versions of certain proposals exist, others have not been fully fleshed out, and still others have only rough cost estimates. But let’s do our best.

[Sorry, one final note: I’m going to be doing what is called a static estimate here, not a dynamic estimate. Under a dynamic estimate, I would also take into account the expected effects that the policies discussed here would have on economic growth, the costs of other programs, and the revenue produced by other taxes. I’m avoiding this not only because it would require far more time and resources than I have available to me right now, but also to avoid excessive political bias in my case. Naturally, I believe that the policy program I propose will increase economic growth and lower the costs of other government programs, but I’d like to illustrate to even someone who disagrees with me on those conclusions that this can all be paid for. All this to say: I’m going to try and be more even-handed in my analysis than the Republican Party is in these debates.]

Sen. Sanders’ plan for tuition-free college uses the $70 billion a year spent on tuition at public colleges and universities as its total cost estimate. While Sanders’ plan would split this cost so that the federal government pays for two-thirds of it while states pay the other third, I’m going to assume the federal government pays for all of it for simplicity. But this number strikes me as a very low estimate when considering both administrative costs and the effects of induced demand: making public college free will attract a lot of people who would otherwise have gone to a private college or not gone at all, raising the number of tuitions to be paid. Since we’re doing back-of-the-napkin math here, let’s increase it by 50% and call it $105 billion.

Cost estimates for single-payer healthcare, referred to by most American proponents as Medicare for All, range wildly based on the proposal and the estimate methodology. Sanders’ campaign gave an unrealistically low number of $1.4 trillion a year for his 2016 proposal, healthcare economist Kenneth Thorpe estimated $2.5 trillion, the fairly hawkish Committee for a Responsible Budget said $2.8 trillion, the left-wing Political Economy Research Institute said $2.9 trillion, the non-partisan Urban Institute said $3.2 trillion, and the right-wing Mercatus Center offered $3.3 trillion as their conservative estimate. Let’s average those last five estimates out to $2.94 trillion and use that as our number.

The Green New Deal exists largely as a set of guiding principles at this point, making any actual revenue estimate guesswork at best. Ocasio-Cortez’s resolution calls for a rather expansive set of policies that include many economic programs not directly related to environmental policy, but which are necessary for “a fair and just transition for all communities and workers” and to “ensure prosperity and economic security for all people of the United States.” (Critics seem to fail to understand that the resolutions serve more as a goal-setting platform than a concrete program). Conservatives frequently claim that the program would cost an absurd $9.3 trillion a year, but anyone who bothers to dig into that number will realize that it’s a distortion of an already questionable estimate released by a conservative think tank. Let’s spitball and say that the purely environmental and infrastructural aspects of the plan cost $500 billion a year- enough for some truly massive and world-changing investments in energy infrastructure, research and development, conservation, housing, and transportation.

So free college, free healthcare, and a Green New Deal together cost somewhere in the range of $3.55 trillion a year. You can argue this is either too high or too low, but we’ll stick with it for convenience. There’s no avoiding the fact that that is a large amount of money. But that doesn’t mean that it somehow can’t be paid for.

Medicare-for-all and Cost Containment

The $2.94 trillion on single-payer healthcare mentioned above, which makes up the bulk of our costs, can be lowered further in a number of straightforward ways.

First, a lot of the money currently being spent on healthcare by the government can be redirected to pay for the new Medicare-for-all program. The cost estimates cited above vary in how they treat this: PERI’s estimate didn’t include any current healthcare spending in their original estimate and found that it could cover the majority of their $2.9 trillion price tag. Most others presume that current Medicare and Medicaid spending will go into the new program, and at least one includes CHIP and ACA subsidies too. But even that one seems to exclude the many other programs that would be made largely redundant by Medicare-for-All and thus can be wound down. The Tax Policy Center notes that we spend $146 billion a year on the tax exclusion for employer-provided health insurance, another $15.8 billion on tax deductions for individuals and the self-employed, and another $10.5 billion on three other programs. That alone is $172 billion a year waiting to be redistributed to a single-payer health program, not to mention the other large expenditures only sometimes present in our cost estimates, other more hidden spending subsidizing private healthcare providers, and the spending currently done by state and local governments. Current government healthcare spending can go a long way towards helping cover the cost of the program.

It’s important to understand that our current healthcare system causes America to spend way more per person than other countries for worse outcomes. This is only projected to get worse: the Congressional Budget Office estimates that 28% of the money that our major health care programs will spend by 2048 will be on “excess cost growth” that happens between then and now. Taking steps to lower healthcare costs without compromising quality will go a long way towards reducing the price tag associated with Medicare-for-all.

Single-payer healthcare itself will lower per capita healthcare spending through a number of means, most notably lowered pharmaceutical prices through government negotiation with pharmaceutical companies and a significant reduction in administrative overhead (not only are we replacing many different companies with one organization, but private healthcare companies spend far more on bureaucracy than Medicare does). These assumptions are included in the cost estimates cited above. Expanded access to preventative care will likely lower overall healthcare costs later down the line, but this received little attention in the analyses. Additionally, switching to single-payer also opens up room for many more cost-reducing healthcare reforms that can bring costs down.

To get wonky: switching from a fee-for-service model to a bundled payments model for payment delivery, increasing transparency among healthcare providers, submitting over-consolidated healthcare providers to anti-trust laws, using new cost analysis methods and other policy mechanisms to make sure the RUC isn’t driving up costs, eliminating restrictive scope-of-practice regulations on nurse practitioners, eliminating certificate of need regulations, removing unnecessary licensing barriers on telemedicene, improving public safety and public health regulations, and taking steps to further reduce waste can all play a role in shrinking costs without reducing quality of care, and thus driving down the public cost of Medicare-for-all.

Additionally, the ridiculous cost of drugs can be further reduced with public pharmaceutical trials, shortening data exclusivity protections for biologics, banning shady pay-for-delay deals among pharma companies, encouraging use of generic drugs, and limiting tax deductions for pharmaceutical marketing (which also frees up additional revenue). The point is, there is a lot we can do to shrink the price tag of single-payer healthcare before we even come to the matter of paying for it.

Redirecting Other Federal Spending

Along with their immense potential for improving the lives of American people, the proposals I’ve been highlighting also serve as an indication that progressives wish to shift federal spending priorities. At the moment, far too much of our federal budget reflects the interests of powerful corporate special interests and an enormous military-industrial complex which come into conflict with the actual needs and values of the American people. Thus, one of the major ways to finance new progressive programs is to shift certain current spending towards these new, more beneficial causes.

I argued back in 2015 that our government was spending way too much on our military, and advocated for substantial cuts that could have their funding redirected somewhere better. In the few years that have passed since then, our annual defense budget has grown by more than $140 billion. The level of money which the United States currently puts into its military is awe-inspiring in its excess. In 2017, Chinese and Russian military spending combined was less than half of ours. It’s past time to have a serious conversation about this. Are we willing to fall far behind nations similar to us on health, education, quality of life, and more just to maintain 800 military bases around the world?

We can reduce our military spending dramatically without seriously threatening our national security, especially when the pure scope of our military interventionism can often make the world less safe (don’t take it from me, ask the Director of MIT’s Security Program, or even Trump’s former National Security Advisor, Lt. Gen. Michael Flynn). Endless warfare must take a backseat to citizen welfare. The Pentagon itself has recommended purely administrative reforms that could cut costs by $15-$30 billion a year before even touching personnel, equipment, or benefits (the latter of which should be off-limits). The Congressional Budget Office recently identified 11 specific areas where cuts can be made without affecting veteran pay or benefits, and many of these can pursued alongside a strategically planned general reduction in the size of our force structure. Cuts to military spending alone could raise hundreds of billions.

We can expand this criticism to a number of other security and intelligence programs. An endless number of officials, experts, and reports have noted the sheer quantity of money that has been and continues to be spent on national security without actually doing much to provide security to the nation. How much of the over $10 billion a year going to the NSA is actually detecting and thwarting security threats, and how much of it is going into broad-net collection of Americans’ personal information just so that the metadata of your texts about getting dinner with your friend are on classified government servers? How about the few billion dollars that ICE spends on “Enforcement and Removal Operations” to fulfill important national security goals like tearing families apart, putting kids in cages, and trapping and imprisoning single mothers who try to put domestic abusers in jail? Speaking of jail, what about the money wasted at all levels of government on the incarceration of criminals who aren’t a threat to the public while better alternatives are available? Here’s another fun fact: a major portion of the US budget known as the “black budget” is entirely classified to the public, and often allows for the government to spend its money without accountability. In 2018, the Trump administration requested a record-breaking $81 billion for it.

Military and security programs are not the only place where government funding is misallocated. Progressives should also take a look at the tens of billions in agricultural subsidies that we give out to wealthy corporate farms every year at the expense of smaller family farms, the tens of billions given to big energy companies every year in the form of fossil fuel subsidies, and the tens of billions more of waste and overlap that the Government Accountability Office identifies. Combine all of this with billions and billions more in smaller wasteful programs and expenditures, and the level of funding that becomes available for more productive uses is rather significant.


There is something that can’t be avoided: these programs will require new tax revenue. While my earlier assertion that the United States undertaxes is probably quite a controversial statement, it’s hard to disagree when looking at the numbers. The average fully-developed nation collected 34.2% of their annual GDP in tax revenue in 2017; the United States collected 27.1% (that’s for federal, state, and local governments combined). If we had taxes at the same rate as the average OECD nation, it would mean an additional 7.1% of GDP in government revenue, which translates to almost $1.5 trillion a year based on 2018 GDP.

In fact, raising our taxes to the level of Sweden, the fourth-highest among the developed world, would yield just short of the $3.55 trillion we would need to fully fund these programs according to the same numbers. The cost-containment and spending reorganizations I mentioned above illustrate that a tax hike anywhere near that large won’t be necessary, but this just goes to show that even paying for almost all of this with taxes alone wouldn’t destroy the country, let alone even put us in the top three wealthy countries for tax rates (indeed, it’s worth noting that of the 12 countries with a higher standard of living than the US, nine have higher taxes than us, including Sweden).

An easy start to raise more revenue would be to take steps to close the tax gap. The tax gap serves as a measure of tax avoidance, showing the difference between how much the government is owed in a year versus how much it’s able to collect. The last IRS estimate put the annual tax gap for 2008–2010 at $458 billion. This number has likely grown substantially since then, as the IRS has been systematically underfunded and declawed in recent years, further lessening their ability to go after wealthy tax dodgers. Cracking down on tax avoidance can raise massive amounts of revenue without any change to tax laws.

But, clearly, that won’t be enough. Concretely, how can we raise the revenue needed for these programs without substantially harming the economy or overtaxing average Americans? Good news: I’ve written an entire article about the specifics of how to do just that.

To start, what better way to pay for a green infrastructure program than with a carbon tax? Taxing carbon emissions can raise massive amounts of revenue while simultaneously reducing carbon emissions (and, when done well, having no effect on economic growth). A significant portion of the revenue would be returned to Americans in some form of dividend to refund the higher energy costs that the tax will produce, but even then the program could provide around $100 billion a year in revenue. If you don’t believe me, you can play around with a carbon tax calculator here.

Progressive taxation can also put the absolutely gargantuan amount of capital currently resting at the top of America’s hierarchy of wealth to work on socially beneficial projects. Higher top income tax brackets, an overhaul of tax expenditures which overwhelmingly benefit the wealthy, eliminating corporate tax breaks and giveaways, raising corporate tax rates above their recently-slashed levels, tightening international tax rules to prevent offshoring profits, eliminating the payroll tax cap and the Gingrich-Edwards loophole, eliminating tax preferences for capital gains and dividends, and expanding the estate tax and closing its loopholes are all ways of raising hundreds of billions of dollars while barely even touching middle class America. Those interested in more specifics can see my progressive tax reform framework which I referenced earlier. After decades of tax reforms meant to shower the wealthiest Americans in even more money, it’s time to turn things around.

While raising taxes for the wealthy to finance programs for the public good is a great idea, a single-payer healthcare program would be expensive enough to require more. Large social programs like Social Security and Medicare have always had their own dedicated funding streams to help ensure their solvency, and Medicare-for-all should have the same. Payroll taxes are one of the most straightforward ways of doing this, both because they’ve worked rather well for the aforementioned programs and because they’re an effective way at redirecting some of the money that will be saved by businesses and individuals no longer needing to pay private insurance premiums. Raising the payroll tax several points will be a tax on most Americans, but will cost the vast majority less than the money that they’re already spending on their health insurance. For example, PERI’s specific Medicare-for-all proposal uses payroll taxes mixed with other more progressive taxes as revenue streams, and they find that total net healthcare costs fall for low and middle-income families while rising for high-income families. For most Americans, Medicare-for-all will save them money even after its associated taxes. Because the benefits are distributed highly progressively, the ultimate outcome is progressive even if part of the revenue stream isn’t.

Of course, payroll taxes aren’t the only way to do this either. Some prefer a national value-added tax, essentially a modified sales tax which is very common around the world. I think a potentially good idea for a supplemental funding stream would be a financial transaction tax, a very small tax (typically around 0.01–0.5%) on the sale of financial products like stocks and bonds. This would be a highly progressive tax that could nonetheless raise hundreds of billions in revenue each year while curbing short-term speculative behavior on Wall Street. The point is, there are multiple paths to raising the required revenue.


Medicare-for-All has the potential to guarantee all Americans quality healthcare, improve both citizen health outcomes and efficiency, and put an end to a system that causes hundreds of thousands of people to go bankrupt every year just to stay alive. A Green New Deal can transform American infrastructure for the better, reducing pollution and environmental degradation while simultaneously creating affordable and high-quality transportation, housing, and communities. Free college can ensure that everyone can realize their potential, enriching lives and raising incomes. Together with other bold programs, a progressive agenda has the potential to end poverty, improve quality of life across countless different dimensions of our lives, and slash the inequality which serves as a threat to both democratic society and liberty itself.

There are legitimate policy criticisms and concerns to be had with all of these ideas. It should be clear that I believe each of them are great ideas even after these criticism are taken into account, but though polling suggests each is already popular, progressives still have a lot of work to do convincing everyone.

What we cannot afford is to let these visionary solutions for the problems of American society perish by letting a criticism that can be rather easily rebutted stand unaddressed. We can pay for it, and there are plenty of great ideas for how.

Maybe you are principally opposed to new taxes; maybe you believe that there are better solutions capable of handling these issues; or maybe you hold a philosophical objection to the provision of public benefits. If that is your stance, you should make that argument. But don’t rely on a question that has already been answered to carry your argument for you. It’s time to start looking at the merits of the progressive blueprint for the future in its own right.

Writer on politics, public policy, and current events. All opinions here are mine alone and do not necessarily reflect the views of employers past or present.

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