Medicare For All – What’s the Cost for The Middle Class?

With the Holiday season winding down in the Cutter household, I’ve been reflecting a lot on this past year, and looking forward to what’s to come in 2020. Maeve has been home from college for Christmas so we’ve had a lot of time to catch up, and she’s given me some new ideas to ponder this month as well. I love to see her continuing to mature and expand her interests to issues that affect our world, but it reminded me that despite what we may hear on campus or read in the media, every issue is not black and white.

A hot topic being tossed around campus these days is the idea of Medicare for everyone. It sounds like a no-brainer, right? Maeve sure thought so. Most people want to help the less fortunate, right? Of course, but the majority of us accomplish this goal through our charitable activities and giving as well as the allocation of some of our tax dollars to help uplift society as a whole. The idea of Medicare for all “feels” pretty good; particularly if we were told the entire financial burden would be carried only by the wealthiest Americans. You know . . .the “rich guys”. That’s what we are being told by some of the policymakers and politicians . . . Medicare for all and the middle-class won’t shoulder any of the burden.

Folks, I am not buying it. And what if, the “rich guy” was you.

Looking back, there have been many times in our country’s past where we embraced a seemingly noble ideal and didn’t appreciate the underlying details that would cause serious ramifications in the future. For example, consider the “The Smokey The Bear Effect.” Around 1900 everyone considered forest fires to be events with no redeeming qualities, and we had the capacity as country (to some degree) to substantially limit them. It sounded like a noble idea at the time. Consequently in 1905, the US Forest Service began to suppress every forest fire, even the smallest forest fires. What policymakers didn’t realize at the time was that those small fires actually served a useful purpose to “cleanse” the forest and they were part of the natural life cycle of the forest. When the smaller fires occurred the older and larger trees survived, and the forest lived on. Once the US Forest Service began this policy of total suppression, they eliminated the useful purpose that these small fires served and ended up creating forest floors that were filled with debris and kindling that created much larger fires in the future.

Subsequent fires had so much fuel that they burned with such intensity that even the larger and older trees could not survive. And it’s a problem that we’re still addressing today.

So, Maeve and I first discussed why we should never set policy such as this on feelings and emotions. And as some policymakers and politicians seek to address health care and the associated costs in the United States, it brings to mind the old saying “the devil is in the details.” So this week, let’s look at these details so we can better understand what this idea is all about and to have a better understanding in how it will financially impact much of the middle class and how they invest and save for the future.

The plan that has gained some momentum lately is being offered by Senator Elizabeth Warren. Her plan claims there would be no burden on the middle class. But, as Maeve and I took a closer look at her plan, it doesn’t bear out the claim that the middle class won’t play a part in footing the cost. Her plan estimates a cost of $20 trillion in federal spending over a decade. Other estimates from independent financial organizations say the plan would cost somewhere between $28 trillion to $36 trillion.

Some general provisions of her plan include taxing employers and employees an equivalent amount to what they currently pay in health insurance premiums; increasing taxes on the top 1% of individuals and large corporations; and “finding” additional funds from tax enforcement, systematic efficiencies, and eliminations of wasteful spending. This last one in particular is speculative at best since the Washington Wizards have been promising fiscal responsibility for decades, and decades, and decades.

In fact, a recent Forbes article detailed the proposed tax increases that would place the burden on only the wealthy. They include adding a wealth tax of 2% to 6% on household net worth above $50 million, eliminating the favorable tax rate on capital gains, increasing the “Obamacare” tax from 3.8% to 14.8% on those with net investment income above $250,000, eliminating the step-up in basis for inheritors, increasing the wages subject to Social Security from $132,900 to $250,000, lowering the estate tax exemption from $12 million to $7 million; and lastly, establishing a financial transaction tax of 0.10%.

But folks, the problem here is that a capital gains tax increase, the step-up in basis, and the financial transaction tax will impact not just the wealthy but also the middle-class investor. And you know, it just does not “feel” right.

That is because if you have a 401K or IRA, the American Retirement Association estimates the increases to the financial transaction tax will cost the average investor $1500 annually. The financial transaction tax applies to all securities transactions within a mutual fund or exchange traded fund. Elimination of the step-up in basis and favorable capital gains will also impact what is passed on to heirs . . . including those in the middle class. For example, under the proposed plan, if you passed on a $175,000 inheritance where half the amount was attributed to cost basis, the amount of tax your inheriting heirs would pay would increase by $10,000 to $20,000.

So, folks, while in the broad sense “Medicare for all without burdening the middle class” may sound like a noble idea, nobody, including Senator Warren, has been able to clearly demonstrate how it can truly be carried out. As we enter the New Year and we contemplate the issues that affect our society, I encourage you to pay attention to the details and make decisions based on knowledge and facts, not feelings and emotions.

And as always – be vigilant and stay alert, because you deserve more!

Happy New Year!!!

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at

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