In 2020, Democrats and Republicans will highlight their differences on a long list of issues, from impeachment to climate change to health care. But they happen to be in perfect accord when it comes to being fiscally reckless. Our elected officials in Washington shower in red ink, douse their morning cereal with red ink and irrigate their lawns with red ink.
The Democrats running for president take the view that anything that deserves federal money deserves federal money we don’t have. The ante for the Democratic debates is not trillions of dollars; it’s tens of trillions.
“Medicare for All,” championed by both Bernie Sanders and Elizabeth Warren, has a price tag of more than $30 trillion over the next decade. That raises the delicate question of financing.
Pressed by one interviewer, Sanders replied: “You’re asking me to come up with an exact detailed plan of how every American — how much you’re going to pay more in taxes, how much I’m going to pay. I don’t think I have to do that right now.”
He wrote the damn bill, as he loves to say. He just hasn’t figured out how to pay the damn bill.
Warren, however, produced a plan last week showing where the money will come from. It assumes all sorts of savings that exceed what independent experts estimate are likely.
It also requires a 6% tax on wealth — triple her original rate. Warren exhibits an unrealistic optimism about how well a wealth tax would work. In Europe, nine of the 12 countries that had one in 1990 have repealed it.
NPR’s “Planet Money” explained why: “It was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries — and, perhaps worst of all, it didn’t raise much revenue.”
The bipartisan Committee for a Responsible Federal Budget did a report that found Medicare for All could be paid for with a 32% payroll tax, a 25% income surtax, a 42% value-added tax, a doubling of all corporate and income tax rates or some combination of taxes.
None of those options may appeal to the candidates, or to Democratic voters. A more likely alternative is one the CRFB mentions: more than doubling the national debt by 2030. As its report says, “This would put debt in 2030 at almost five times its historic average of 42% and nearly twice the historic record of 106% (set after World War II).”
That course may sound wildly improvident, because it is. But it’s unlikely Warren would scale back her many plans rather than enlarge the deficit.
She and other Democrats know the other party has no credibility on fiscal responsibility. Two years ago, Republicans passed a $1.5 trillion package of corporate and individual tax cuts. The Congressional Budget Office projected it would swell the budget deficit by $1.9 trillion by 2028.
Treasury Secretary Steven Mnuchin, however, insisted it would “not only pay for itself but in fact create additional revenue for the government.” Donald Trump predicted that economic growth “could go to 4, 5, and maybe even 6%.”
Candidate Trump pledged to pay off the entire national debt, which would mean running huge budget surpluses. But last year, the deficit jumped by 26% to $986 billion — the highest figure since 2012. Since he took office, the total federal debt has grown by $3 trillion. Growth in the past two quarters has not been 4, 5 or 6%; it has been 2% and 1.9%.
Yet Republicans show no doubts about their favorite nostrum. “White House officials and congressional Republicans have begun early talks on a new package of tax reductions and economic growth measures, under pressure from President Trump, who is agitating to announce a new tax cut proposal heading into the 2020 election,” the Washington Post reported Thursday.
Why not? In political terms, you can rarely go wrong telling voters they won’t have to fork over so much money to the IRS. It’s also low-risk, Democrats know, to promise voters they can have new programs (free college, universal child care, affordable housing construction) without higher taxes for most people.
The habit of spending beyond your means, once acquired, is hard to contain. Not long ago, a deficit of $1 trillion or more would have seemed like budgetary abandon. Before long, it may sound like fiscal austerity.