On Friday, Elizabeth Warren released a financing proposal for Medicare for All. The core feature of that proposal is an employer-side head tax, which will charge every employer with more than 50 employees a flat dollar amount for every worker they employ. As I noted on Friday, Warren’s head tax is very regressive and far inferior to the usual income and payroll tax proposals. More recently, the Tax Policy Center’s Howard Gleckman and CBPP’s Jared Bernstein have made the exact same point.

As part of the response to this undeniable point, it appears that Warren’s team, e.g. Simon Johnson, has been pushing out arguments that conflate Warren’s temporary maintenance-of-effort (MOE) payment with the permanent head tax that she transitions into. This conflation has been at the root of similar arguments made by Mike Konczal and Jordan Weissman, among others.

Maintenance-of-Effort Payment

In year one of Warren’s financing proposal, employers will calculate how much they paid in health premiums in the prior year, adjust that sum upwards for health care inflation, adjust that sum downwards by two percent, then divide that sum by their number of employees. This modified per-employee amount will then be paid by the employer to the government. This kind of payment is usually called a maintenance-of-effort (MOE) payment.

For an example, suppose you have an employer with 100 employees who spent $1 million on premiums in 2021. Suppose that, between 2021 and 2022, health care inflation is 4 percent. This employer would figure out their modified per-employee amount by calculating: ($1 million * 1.04 * 0.98) / 100 = $10,192. If Warren’s plan were enacted by 2022, the employer would take $10,192, multiply it by their number of employees in 2022, and send that sum to the government.

The idea of using an MOE payment that is patterned on status quo employer premium contributions as a temporary transitionary device is not new. PERI uses the exact same transitionary device in its proposal.

If you look only at the temporary MOE, you can make claims like “Warren is only making employers contribute what they are already contributing” or “Warren avoids creating a windfall for some employers that they may pocket as profit rather than pass through as higher wages” or “Warren avoids dumping large new costs on often low-wage employers that do not currently provide health care.” All these points are just variations on the point that, because MOEs preserve the status quo way of patterning payments, they avoid all of the problems associated with changing the system to a new way of patterning payments.

The problem with all of this analysis though is that the MOE payment is a temporary transitionary device. It would be impossible to run a system that was perpetually patterned on the distribution of health care payments among firms in the year prior to Medicare for All.

This is why both PERI and Warren say that the temporary MOE payment has to be gradually replaced by a different tax scheme. For PERI, that scheme is a payroll tax in which employers are gradually moved towards paying the same percentage of their payroll regardless of what they used to contribute. For Warren, it is a head tax in which employers are gradually moved towards paying the same dollar amount per worker regardless of what they used to contribute.

The Head Tax

Once Warren’s MOE gives way to a head tax, all of these arguments people are making about it become false. Warren is not going to only make employers contribute what they were previously contributing. Instead she is going to making them all contribute the same amount per worker, i.e. a head tax.

This shift to the head tax will mean that firms that previously contributed an above-average amount to health premiums will wind up with a surplus, creating the exact same (supposed) “pass through” problem that any other scheme has. It will also mean that firms that previously contributed a below-average amount will wind up with a deficit, creating the exact same (supposed) problems with low-wage workers and their employers having to absorb higher labor costs.

All of the heterogeneity problems, pass through problems, and incidence issues that are supposed to plague the ordinary payroll tax are all still present in Warren’s head tax. In fact, those problems are worse in Warren’s head tax.

Under a payroll tax, the “losers” (i.e. employers who wind up with a deficit relative to the status quo) are employers who currently spend a below-average percent of their payroll towards health care. This mostly describes employers of highly-paid workers because health premiums are a small share of the overall labor compensation received by highly-paid workers. On the flipside, the “winners” (i.e. employers who wind up with a surplus relative to the status quo) are employers who currently spend an above-average percent of their payroll towards health care. This is going to be mostly employers of low-wage and middle-wage workers because health premiums make up a large share of their overall labor compensation.

For a head tax, this situation is exactly reversed. The losers are companies that spend a below-average amount per worker on health care, which is going to tilt towards low-wage and middle-wage workers. The winners are companies that spend an above-average amount per worker on health care, which is going to tilt towards high-wage workers. This is what is meant by saying the head tax is regressive.

Warren’s head tax is also worse in certain distributive edge cases that policy wonks have often fixated on.

The most common one is the distributive edge case of a low-wage employer who currently provides very cheap or even no health insurance to their workers. This is supposed to be a head-scratcher for the payroll tax because, once that tax is implemented, these employers are going to have to pay more than they currently do towards health care, which could be worse for their low-wage workers.

But this is even more of a head-scratcher for the head tax. The payroll tax dings these employers a little because they now have to pay a small percentage of their low wages to the government. But the head tax dings them a bunch because they have to pay the full amount of an average premium to the government. If you are worried about an unlucky ducky who earns $20,000 having to pay, through their employer, an extra $1,600 (8 percent payroll tax) to the government, you should be losing your mind at the idea of them paying $9,500 (rough estimate of Warren’s head tax) to the government.


Warren’s head tax solves none of the problems other taxes have and actually makes all of those problems worse. Pundits who are mixed up about this because she uses an MOE payment as a transitionary device, which is something some payroll/income tax proposals also do, are making false claims about her proposal, which make it sound more sensible than it actually is. The head tax is completely indefensible on the merits.