Cost of Democratic Socialism

It’s 2 months before the 2018 election, and in the wake of Bernie Sanders presidential run and aspirations, “democratic socialist” candidates are all the rage.

These candidates often propose new government programs with large benefits: single payer healthcare, guaranteed jobs programs, free college, and so on.

Benefits have costs. Politicians and voters are not unaware of this. Ideally, we’d only like to pursue things for which the benefits exceed the costs (or net benefits are positive).

This is a surprisingly hard thing to do because it’s hard to pin down costs.

David Riedl, an economist working for the conservative Manhattan Institute, has stockpiled a lot of numbers from neutral to progressive (not conservative) sources all in one place. It’s not pretty.

The Federal government is projected to collect $44T in revenues over the next decade, to help pay for $56T in spending (the difference being national debt increases from running deficits). The democratic socialist proposals that are on the table are projected to add $42T in spending to that total.

Single payer healthcare provides a good example:

And here is a key point: … I have yet to come across even one specific single-payer proposal that raises anywhere close to the roughly $30 trillion needed to pay for the new system …

…

Democratic socialists are disingenuously cagey about the exorbitant tax burden they require. Alexandria Ocasio-Cortez recently offered a list of tax increases — such as a 28 percent corporate tax rate, a “Buffett tax” on millionaires, and carbon tax — that collectively add up to just $2 trillion over the decade, according to the CBO.

Here are three ideas that are in fairly common discussion. We’ll go back to the whole slate of $44T of new spending, and take at face value progressive estimates that $10T of that would be covered by savings over current systems. Fair enough. You can come up with the remaining money by:

• Taxing corporations and the rich: a 100% tax on corporate profits and a 100% tax on all income over $150K would do the trick. This presumes corporations would stay open, and the rich would still work.
• Introduce a VAT of 87%. This is essentially a nationwide sales tax on all items.
• Add a new payroll tax of 37% on top of the 15% FICA tax we all pay now.

Do note that these three could be combined to lessen the burden of each.

Read the whole thing, entitled “America might be ready for democratic socialism. It’s not ready for the bill.” at Vox.

Hat tip to Tommy Austin, who took principles of macro from me back in the mid-90s, and who still sends cool links to his old professor.