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Politics

The Unaffordable Candidate

bernie sanders unaffordableIt’s been a difficult time for Senator Bernie Sanders, who was hospitalized two weeks ago after suffering a heart attack and whose 46-year-old daughter-in-law has recently died of cancer. Given Sanders’s age (78) and health and familial challenges, his quest for the Democratic presidential nomination looks like an uphill battle. For the time being, at least, he pledges to continue his campaign.

And so long as Sanders remains in the race, it’s worth taking his policy ideas seriously, since he has unveiled expensive new spending proposals on a near-weekly basis. All told, Sanders’s current plans would cost as much as $97.5 trillion over the next decade, and total government spending at all levels would surge to as high as 70 percent of gross domestic product. Approximately half of the American workforce would be employed by the government. The ten-year budget deficit would approach $90 trillion, with average annual deficits exceeding 30 percent of GDP.

The $97.5 trillion price tag is made up mostly of the costs of Sanders’s three most ambitious proposals. Sanders concedes that his Medicare For All plan would increase federal spending by “somewhere between $30 and $40 trillion over a 10-year period.” He pledges to spend $16.3 trillion on his climate plan. And his proposal to guarantee all Americans a full-time government job paying $15 an hour, with full benefits, is estimated to cost $30.1 trillion. The final $11.1 trillion includes $3 trillion to forgive all student loans and guarantee free public-college tuition—plus $1.8 trillion to expand Social Security, $2.5 trillion on housing, $1.6 trillion on paid family leave, $1 trillion on infrastructure, $800 billion on general K-12 education spending, and an additional $400 billion on higher public school teacher salaries.

This unprecedented outlay would more than double the size of the federal government. Over the next decade, Washington is already projected to spend $60 trillion, and state and local governments will spend another $29.7 trillion from non-federal sources. Adding Sanders’s $97.5 trillion—and then subtracting the $3 trillion saved by state governments under Medicare For All—would raise the total cost of government to $184 trillion, or 70 percent of the projected GDP over ten years

Such spending would far exceed even that of European social democracies. The 35 OECD countries average 43 percent of GDP in total government spending. Finland’s 57 percent tops the list, edging France and Denmark. Meantime, Sweden and Norway—regularly lauded as models for the U.S.—spend just under 50 percent of GDP. The U.S. government, at all levels, spends between 34 percent and 38 percent of GDP, depending on how one calculates.

Sanders’s agenda is virtually impossible to pay for. Adding $97.5 trillion in new spending to an underlying $15.5 trillion projected budget deficit (under current policies) creates a ten-year budget gap of $113 trillion. Yet Sanders’s tax proposals would raise at most $23 trillion over the decade.

His Medicare For All financing worksheet contains $16.2 trillion in mostly-broad-based tax increases, which rises to $19.3 trillion after replacing the worksheet’s original $1.3 trillion wealth tax with the recent $4.35 trillion version. Social Security expansion would be financed by $1.8 trillion in new payroll and investment taxes. The Congressional Budget Office estimates that the financial-transactions tax intended to pay for Sanders’s college agenda would raise $777 billion. The climate proposal and family-leave proposals each contain approximately $200 billion in specified tax increases. Repealing the 2017 tax cuts—beyond what is already accounted for in other proposals—would raise at most $1 trillion. Sanders has backed away from his previous support for a carbon tax.

Tax rates would soar. Sanders would raise the current 15.3 percent payroll tax to 27.2 percent due to an 11.5 percent Medicare For All payroll tax (with some exemptions), and a 0.4 percent payroll tax for paid family leave. (The full Social Security payroll tax would also be applied to wages exceeding $250,000.) Sanders proposes a top federal income-tax rate of 52 percent. Capital gains and dividends would be taxed as ordinary income, plus a 10 percent net investment-income surtax for the wealthy. The resulting 62 percent top tax bracket for investments would be so far beyond the revenue-maximizing rate that it would produce little actual revenue. Overall, upper-income taxpayers would face a marginal tax rate as high as 80 percent from their federal income, state income, and payroll taxes. They would also be assessed a 62 percent investment tax rate, an annual wealth tax of up to 8 percent, and a 77 percent estate tax.

Yet these $23 trillion in proposed taxes would still leave a staggering $90 trillion budget deficit, or 34 percent of GDP. Closing the rest of the gap—which comes to $66,000 per household annually—is basically impossible. Given that Sanders already maximizes taxes on the wealthy, that leaves the payroll tax or a value-added tax (VAT) to raise the rest. The CBO claims that each 1 percentage-point increase in the payroll tax raises $0.9 trillion over the decade, thus requiring an extra 100 percent rate on top of the 27.2 percent proposal. Alternatively, a European-style VAT would raise $0.4 trillion per percentage point, thus requiring an absurd 225 percent tax rate to close the remaining $90 trillion budget gap. Cutting defense spending to NATO’s European target of 2 percent of GDP would save just $3 trillion. Even seizing all $82 trillion in household financial assets would be insufficient.

Sanders claims that economic growth would produce enough revenue to offset much of these costs. It’s more likely that exorbitant tax rates and the diversion of millions of private-sector workers into government “make-work” jobs would reduce investment, productivity, and growth. Yet even for the sake of argument, permanently doubling America’s trend economic growth rate from 2 percent to 4 percent would raise just under $6 trillion in new revenues over the decade—still leaving an $84 trillion budget gap.

The massive cost of the proposed government-job guarantee has rarely been analyzed and requires a deeper explanation. Sanders would guarantee a full-time job paying at least $15 per hour with full benefits—and nearly guaranteed job security—to anyone who wants one. A report commissioned by the Center on Budget and Policy Priorities calculated that a more modest version of this proposal—paying a minimum wage of $11.83—would cost the government $56,000 per full-time employee when including benefits and administrative costs. Factoring in 4 percent annual cost growth, 1 million participants would cost $672 billion over the next decade.

Participation would surely include the 11.3 million jobless Americans who are either actively seeking a job or have stopped looking but still want to work. That would cost $7.6 trillion over the decade. Yet 42.4 percent of the workforce—or nearly 67 million workers—earns less than $15 per hour. Proponents assume that employers will offer large raises and new benefits to keep these employees in their current jobs. Assuming even half of them instead switch to a government job for the higher pay, job security, and/or (likely) easier work, enrollment would increase to 45 million, at a cost of $30 trillion over the decade.

Some costs would be offset by having fewer people collecting health and welfare benefits elsewhere. On the other hand, there is reason to believe that costs would rise further. As stated above, the calculations are based on a $11.83 government wage rather than Sanders’s $15 proposal. Enrollment would surely surge during recessions, and individuals unhappy in their demanding, dangerous, or unstable jobs that pay slightly above $15 per hour might see a government job as a better bet. Many of the 7 million seniors living in poverty, unsure of their work capabilities, could be lured back into the workforce with a healthy wage and job security.

Medicare For All is a major driver of Sanders’s budget deficits. The proposal would essentially replace all health premiums and out-of-pocket expenses with a new “single-payer tax” and federal provision of health care. Despite their assertions that families would come out ahead—that their health taxes would be lower than past premiums and out-of-pocket costs—Medicare For All proponents have failed to design a tax that could replace the current $35 trillion spent by families, businesses, and state governments. Sanders’s Medicare For All legislation includes no tax mechanism, and his worksheet of tax options adds up to just $19 trillion. Fully funded Medicare For All legislation doesn’t exist.

If the 70 percent of GDP spending estimate seems too high to be accurate, consider that no OECD country offers anything remotely similar to Senator Sanders’s proposed job-guarantee program or has nationalized a health system that consumes nearly 20 percent of its GDP.

Sanders’s agenda would result in approximately half the American workforce working for government. Current government employment at all levels is just under 23 million; the job guarantee would likely attract 45 million new participants. More than 16 million private health-care employees would essentially become government employees. Approximately 1 million new employees would likely be needed to staff other policies such as the job guarantee. That’s 85 million total government employees out of a 170-million-person American workforce, minus any individuals overlapping between these groups.

With more than a year to go before the 2020 presidential election, Sanders may well top $100 trillion in promised new government spending. He should be pressed to explain the feasibility of his agenda and how he would finance it.

Reprinted with permission from - City Journal - by Brian Riedl

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