Bernie Sanders’ economic policy

A vote for what?

Health-care costs and high taxes would sink the Sanders economic plan

Feb 13th 2016 | WASHINGTON, DC | From the print edition

Power to the tax planners

HOW radical is Bernie Sanders? The self-declared socialist likes to remind voters that many of his policies—say, on health care, or on paid family leave—simply copy most of the rest of the rich world. Compared with left-wingers there—Jeremy Corbyn in Britain, for instance—Mr Sanders is no socialist. It is freewheeling America which puts Mr Sanders on the far-left. The truly socialist thing about Mr Sanders’s admirably detailed economic plan is not its goals. It is that it is completely unworkable.

Under President Sanders taxes, particularly on high earners, would soar. Mr Sanders wants to make public universities free, increase infrastructure spending and expand Social Security (pensions). His most ambitious policy calls for the government, rather than private insurers, to pay health-care bills. That would cost $14 trillion over a decade, requiring new taxes on most workers worth 8.4% of their income.

Expanding Social Security means a further big tax rise for those making more than $250,000. Income-tax rates would become more steeply progressive, too. Totting up all the levies, the top marginal rate of federal tax—which would be levied on households earning more than $10m—would rise to about 67%. (Adding in state taxes would take it higher still.)

That is not without precedent: in the 1970s, the top rate was around 70%. This would probably dent growth, and it is at the high end of estimates of the rate which maximises revenue. Taxes might have to go higher still. Mr Sanders plans to tax capital gains as ordinary income. High earners can decide whether or not to sell assets, making this tax easy to dodge. Partly because of this,the Committee for a Responsible Federal Budget, an advocacy group, reckons Mr Sanders has highballed his revenue estimates by $3 trillion over a decade.

Mr Sanders knows that soaking the rich can get him only so far. He is also banking on health-care costs tumbling. Health spending per person is two-and-a-half times the average for the OECD, a club of mostly rich countries. The immense bargaining power of a government buyer could help to control waste. Medicare, government-funded health insurance for the over-65s, already provides care at a lower cost than private insurers. Mr Sanders predicts $6.3 trillion of savings over a decade.

That looks like wishful thinking. A costing of Mr Sanders’s plans by Kenneth Thorpe of Emory University, using more conservative assumptions, found that the plan was underfunded by nearly $1.1 trillion (or 6% of GDP) per year. If Mr Thorpe is right, higher taxes will be required to make the sums add up. In 2014 Mr Sanders’ own state, Vermont, abandoned a plan for a single-payer system on the basis that the required tax rises would be too great.

Getting health-care costs down is easier than it sounds. Mr Sanders hopes to save a bucketload on administration. But 20% of health spending flows to doctors, nurses and the like. A study published in Health Affairs, a journal, in June 2015 found that the average nurse earns about 40% more, and the average doctor about 50% more, than comparably educated and experienced people in other fields. To bring costs down to British or Canadian levels, these salaries would have to fall. Half a million Americans work in the private health-insurance industry, which would shrink or disappear if Mr Sanders had his way. His plan is “radical in a way that no legislation has ever been”, argues Henry Aaron of Brookings, a think-tank.

Mr Sanders has bold plans for monetary policy and banking, too. He supports a movement headed by Rand Paul, an erstwhile Republican runner, to get politicians more involved in decisions on interest rates, because he thinks Fed policy is too tight. To loosen it,he would bar the Fed from raising rates when unemployment is above 4%.

Mr Sanders’ plans tend to suffer from a fallacy of composition. Although the average American might not mind paying higher taxes instead of a health-insurance premium, some—such as firms that do not provide health insurance—would face big losses. With such concentrated costs, Mr Sanders’s plans would have no chance of making it past Congress, even an improbably friendly one.