The Tax Plans of America’s Self-Proclaimed Populists

Likening Donald Trump to Bernie Sanders may elicit a laugh. However, both presidential candidates are essentially running on a populist platform. With Senator Sanders, populism comes in the form of democratic socialism that champions the causes of the working class. For Trump, it appears as an egalitarian approach to conservatism. In fact, both espouse tax reforms and economic policies that would lessen the burden on the middle class. And while the plans put forth by both candidates do intend to mitigate that burden, they do so in distinctly different ways. While Sanders seeks to expand social programs like Social Security and Medicare and services like public education and state-sanctioned parental leave, Trump suggests cutting taxes — even removing them completely in order to increase disposable income. Yet, critics attack each approach for its implausibility. Both plans deserve degrees of skepticism, but the implications of Trump’s and Sanders’ plans merit far more investigation.

Unlike Donald Trump, who has published an official tax plan on his website, Bernie Sanders has yet to outline an official agenda. However, he has introduced many pieces of legislation to reform the tax code and invest in job creation. He has also remained consistent on his informal proposals, so it stands to reason that he will make them official in the coming months as the primary approaches. Thus far, Senator Sanders has introduced the Employ Young Americans Now Act with Representative John Conyers, which would provide $5.5 billion in funding to employ one million Americans aged 16 to 24 and provide job training to hundreds of others. He has also brought forth a bill to increase the federal minimum wage from $7.25 to $15 per hour by 2020. His most notable economic policy proposals, however, include:

  1. A progressive estate tax on the top .3 percent of Americans, earning more than $3.5 million in income
  2. A tax on Wall Street speculators
  3. Investing $1 trillion in rebuilding America’s infrastructure over 5 years, estimated to create 13 million jobs
  4. Free tuition at public universities
  5. Lifting the cap on taxable income above $250,000 for Social Security benefits
  6. Converting the healthcare system to a single-payer program
  7. Enacting a universal childcare and pre-K program
  8. Easier unionization through the Employee Free Choice Act
  9. Breaking up too-big-to-fail financial institutions

To say that it’s an ambitious plan is an understatement. And inevitably, these social programs cost an enormous amount of money — many estimate as much as $18 trillion over the next 10 years. Historically, government spending hasn’t exceeded 20 percent of GDP, yet these proposals would grow that number to a hefty 30 percent. Sanders, however, welcomes our furrowed eyebrows, reassuring Americans that “We Think Big.” A foundational supposition of the Democratic ideology is that the government has a role to play in the lives of people — for democratic socialists, that tenet underlies every law, proposal, and reform. It’s no wonder that Senator Sander’s proposal seeks to expand government. He looks to Nordic models and sees an enormously successful government that ensures that no one is either advantaged nor disadvantaged. However concerning his price tag may seem, it’s important to delve into the current fiscal allocations. His proposals can be placed into two buckets: $3 trillion for his various social programs and $15 trillion for health care — a Medicare-for-all, single-payer system.

As of now, the government already largely finances the healthcare system through extensive subsidies. In fact, our healthcare system costs $2.8 trillion annually, and that spending constitutes 17.7 percent of our GDP. This money does go to private insurers, however, which undoubtedly means that billions of dollars get funneled into all facets of the company — not just care. In fact, 15 to 30 percent of healthcare spending goes to marketing, billing, utilization review, and other non-medical expenses. Economists who have researched the matter estimate that a single-payer health care system would save an enormous amount of money in the long run. For example, the Expanded and Improved Medicare for All Act (H.R. 676) was a bill proposed to expand Medicare for all US citizens to provide free healthcare that covers “all medically necessary care, such as primary care and prevention, dietary and nutritional therapies, prescription drugs, emergency care, long-term care, mental health services, dental services, and vision care.” A study conducted by economist Gerald Friedman suggests that the government would see $10 trillion in savings with H.R. 676. Therefore, it is possible to afford the $4.5 trillion additional services  that it proposes, while still reducing national healthcare spending by over $5 trillion.

The United States pays far too much for its health care now due to prescription prices, inflated medical costs, and administrative transactions. On average, the United States spends significantly more on prescriptions than other countries do for the same drug. Just as an example, Nexium, a heartburn medication, cost US purchasers $215 for a prescription in 2013, while the Dutch paid $23, the English paid $42, and the Spanish paid $58. Beyond the actual healthcare aspect, a national health insurance program could save $150 billion by getting rid of those extra, non-healthcare-related channels for funds. With the government paying for healthcare costs directly and excluding the mega-Leviathan private insurers who charge exorbitant monthly payments for little coverage, it’s very likely that Americans would save far more than the $15 trillion Sanders is proposing to pay for it. The United States already pays the most on healthcare compared to what the other industrialized countries pay. What’s worse is that the United States ranks lowest and least efficient when compared to its peers. While the average spending per capita on healthcare costs in the United States averages around $8,508, the next country in terms of expenses is Norway at just $5,669. In other words, $15 trillion over the next 10 years isn’t an additional cost; it’s the government taking on what we already pay and reducing it by making the system more efficient. The government would essentially eradicate health insurance premiums, raise taxes, and still save the individual taxpayer money. And while Republicans reply to these ideas with utter consternation and a wag of the finger in honor of “fiscal responsibility”, they feel very comfortable cutting taxes (like Jeb Bush’s tax plan, which would cost $3.4 trillion over ten years) and increasing military spending. Has anyone ever heard a complaint from the military that they don’t have enough funding? Meanwhile, there are innumerable stories of people dying from treatable illnesses because they can’t afford treatment.

In terms of his other plans, Senator Sanders looks to the upper echelon of earners. To make public universities tuition-free, for example, he proposes $70 billion a year in assistance (two-thirds from the federal government and one-third from states) in order to replace the current tuition and fees that universities charge. He plans to pay for this by charging a tax on the Wall Street transactions of investment houses, hedge funds, and other speculators. However, given financial institutions’ lobbying efforts, this proposal is likely to find zero support in Congress. This summer, Sanders also introduced the Guaranteed Paid Vacation Act, which would amend the Fair Labor Standards Act to “require specified employers (engaged in commerce, or in industries or activities affecting it, who employ at least 15 employees at any time during a calendar year) to provide each employee at least 10 days of paid vacation time during each 12-month period.” He contends that this would benefit the economy, citing one study that found that paid vacation leave would provide an additional $160 billion in total business sales, $21 billion in tax revenues, and 1.2 million additional jobs in industries like manufacturing and retail.

While Sanders seems to have an abundance of social programs in the pipeline given his hefty investment, Trump’s tax plan leans to the left as well. It actually eliminates all income taxes for single individuals earning less than $25,000 a year and married individuals jointly earning less than $50,000. This measure alone lifts a massive financial burden for nearly 75 million households, over 50 percent of the population, from the income tax rolls — the average person would purportedly save $1,000. This seems incredibly progressive.

However, these cuts are not only for the lower class but for everyone. He seeks to reduce the seven current tax brackets to a mere four, with the highest at 25 percent. Just to place that into context, the current top rate for anyone making more than $413,000 a year is 39.6 percent. Corporations will see their taxes cut too, as Trump proposes a flat tax of 15 percent for all business — from small tackle and bait shops to large conglomerations like Warner Brothers. Again, in context, the current corporate tax is as high as 35 percent for larger companies. All this, Trump claims, will be paid for by closing corporate loop-holes, charging hedge-fund managers’ minor performance-based fees, and bringing back money stored away overseas to avoid US taxation, which he estimates to be $2.1 trillion (no word yet on where those numbers come from). Even this, however, would be incentivized with a discounted 10 percent tax rate on the funds brought back from overseas. Did I mention that he would also do away with the estate tax?

Although at first glance, Trump’s tax plan seems rather progressive, it appears to disproportionately make the rich richer. The top one percent are largely the ones paying the corporate tax, so not only do they get a steep tax cut of almost 15 percent, but they also receive the staggering corporate tax cut. And if history is any indication, corporate tax cuts will likely end up in the pockets of CEOs and shareholders — not new or better jobs. Even the Tax Foundation, a very conservative thinktank based in Washington, DC, acknowledges that this plan can’t justify itself financially, contending that it would add over $10 trillion to the deficit over ten years.

The models of both Bernie Sanders and Trump put a significant strain on the government — though the exact figures are difficult to calculate. However, Bernie’s plan targets those who need the support and directly supports the middle class; Trump’s plan disproportionately creates more wealth for the richest Americans and corporations under the guise of lowering the tax burden for the average American. Trump appeals to many lower middle class, working Americans who would like to see their taxes decreased. Yet, they play a very minor role in his overall agenda, and the programs that millions of those Americans rely on, like Social Security and Medicare, won’t find the financing they need after all of that government revenue gets shuffled back to the very rich.

In short, neither plan is perfect and would face significant political hurdles in Congress, but it’s imperative that we consider the larger and long-term implications of these policies and whom they impact. Economic policy is much more than tax cuts and spending allocation — it’s a statement about whom the government serves.