Single-payer health care isn’t coming to California in 2022.
Assembly Bill 1400 died without a vote in the California Assembly last week. AB 1400 would have created a government-funded single-payer health care system for all California residents, legal and illegal.
The price of the system has been estimated at between $330 billion and $393 billion per year. That would be more than double the current state budget of $263 billion. It would take more than doubling state taxes.
Naturally, these taxes were billed as only affecting big business and the wealthy. Personal income tax rates would have increased by 0.5% to 2.5% for people with incomes over $149,000. Companies would have paid a 2.3% tax on gross receipts over $2 million. Companies with more than 50 employees would have paid an additional payroll tax of 1.25% on all earnings and an additional 1% on earnings over $49,900.
It is madness to think that the effect of these taxes would not have affected all Californians.
Start by adding up the taxes on any business with over $2 million in sales and 50 employees. A 2.3% tax on receipts could turn any company with low profit margins into a loser. This is before considering the 2.25% payroll tax. These new taxes would be partially offset by the loss of company-paid healthcare costs. For many companies, these taxes could have been the difference between making money and losing it; between staying open and closing; between staying in California and seeking greener pastures.
For reference, the net profit margin of the 500 largest companies in the Standard & Poor’s 500 index has averaged 11% over the past five years. For a service-oriented company where most of the expenses are employee compensation, California profit would have fallen by 40% under the AB 1400 regime.
To preserve their profitability, companies would have several choices. First, they could raise prices. This would have the effect of passing the tax on to all customers, rich and poor alike.
Companies could replace people with machines. Fewer employees equals fewer payroll taxes.
Businesses could stay small in order to stay below the limits of 50 employees and $2 million in revenue.
Businesses could move to another state.
California is already losing people and businesses to other states. AB 1400 would have accelerated the trend. But, hey, at least the newly unemployed would have had health insurance.
It’s doubtful we’ve heard the last of the all-gain, pain-free, single-payer dream. There are always those who believe that there is a “free lunch” public policy. But for now, at least, California’s economy has dodged a bullet.
Jeffrey Scharf is the founder of Act Two Investors LLC, a registered investment adviser. Contact him at [email protected]