What Would Sanders Do? The Dynamic Effects Of His Economic Program
By Gerald Friedman
Sen. Bernie Sanders (I-Vt.) is running for President on a platform that repudiates the neoliberal economic policies of the last 40 years. He favors an expansion of government spending on infrastructure and social services, progressive tax increases, and regulatory reform to favor working people. No one should be surprised by the popular support that his campaign has enjoyed. Nor should we be surprised that he has been attacked not only by the right but also by centrists and Wall-Street liberals.
Sanders’ proposals for infrastructure, early-childhood education, higher education, youth employment, family leave, private pensions, climate change, health care, and Social Security would total $14.5 trillion over 10 years (see Table 1). In addition to investments in infrastructure and education (birth through college), he would raise Social Security retirement and disability payments to lift all beneficiaries out of poverty, and he would create a national health insurance program to provide universal access to health care.
|Program||10-year fiscal impact ($billions)|
|Rebuild America Act for infrastructure||$ 1,000|
|Employ Young Americans Now to create 1 million summer youth jobs||$ 5.5|
|Social Security benefits increase||$ 491|
|Social Security indexation||$ 25|
|Protect private pensions||$ 29|
|College for All: free tuition at public institutions||$ 750|
|Paid Family and Medical Leave||$ 320|
|Universal Pre-K||$ 1,300|
|Climate change, energy efficiency, climate resiliency, clean energy worker transition||$ 1,275|
|Medicare for All||$ 9,382|
|Total over 10 years:||$ 14,577|
Some of the Sanders program would be financed by redirecting existing spending, including tax expenditures. I estimate that there is more than enough new revenue to pay for the program.
Table 2. Revenue enhancements in Sanders program and 10 year impact ($billions)
|Program||10-year fiscal impact ($billions)|
|Corporate Tax Dodging Prevention Act||$ 1,000|
|Progressive estate tax||$ 214|
|1% wealth tax on net worth over $21 million||$ 1,300|
|Financial Transactions Tax||$ 3,000|
|Payroll tax increase of 0.2% (on employers and employees) to pay for Family Leave||$ 339|
|Closing loopholes in estate tax and for artwork||$ 29|
|End Polluter Welfare by ending tax breaks and subsidies for fossil fuel||$ 135|
|Raising cap on Social Security payroll tax and extending Social Security tax to dividend and capital gains income for high-income households||$ 1,988|
|Carbon tax||$ 1,100|
|4.75% payroll tax on Employers||$ 4,800|
|Progressive tax plan on the top 2%||$ 2,168|
|Total over 10 years:||$ 16,004|
Note: Revenue estimates are my own and are not the responsibility of the Sanders campaign.
Aggressive fiscal policy and the impact of progressive regulatory changes like the higher minimum wage, would lead to a dramatic increase in economic growth under a President Sanders. According to my estimates, the growth rate of the real gross domestic product would rise from 2.1% per annum to 5.1% so that real GDP will be nearly $6 trillion higher, with per capita GDP nearly $20,000 higher in 2026. Higher GDP comes with increased employment, nearly 24 million additional jobs in 2026, and an increase in monthly employment growth from 77,000 to 277,000. The unemployment rate would fall to 4.0% by the end of the first Sanders term in 2021, and would remain at that full employment level through the end of the second term in 2025.
Figure 1. GDP at CBO projected inflation, Sanders and current policy, 2015-.
Note: This figure gives nominal GDP at the inflation rate projected by the CBO. The inflation rate under Sanders would be about 1% a year higher; the Sanders GDP has been deflated by this to make the numbers comparable in real terms.
Faster economic growth, low unemployment, an increase in the minimum wage and other regulatory changes would all raise wages. There would be sustained increases in real wages for the first time since the 1960s with real wages growing at a rate of nearly 2.6% per annum. While the economic growth rates projected by the Congressional Budget Office would raise real annual wages by less than $1,300 over the next decade, an increase of barely 3%, wages would rise by nearly ten-times as much under Sanders. While faster economic growth would add nearly $2,300 to the median annual wage, regulatory changes would do even more. Higher minimum wages would raise median wages by nearly $2,000; and the Medicare-for-All program would raise median wages by over $4,000 by removing the burden of health care insurance from employers and workers (see Figure 2).
Figure 2. Effect of current economic policy (CBO estimates) and Sanders program on median wage; wage increase 2015-26.
Rising employment, increases in the minimum wage, and enhancements to social security would lower the poverty rate to 6%, the lowest recorded rate in US history. The poverty rate for children would fall to below 11%. In all, rising wages and progressive taxation would dramatically narrow the gap between rich and poor. The ratio of the average income of the top 5% to that of the bottom 20% would fall from 27.5 to 9.2 (see Figure 3).
Figure 3. Decomposing the decline in inequality. Estimated effect of different Sanders programs on ratio of income top 5% to bottom 20%
Further analysis and complete references can be found in Gerald Friedman’s report: “What would Sanders do? Estimating the economic impact of Sanders programs” (ms., University of Massachusetts at Amherst, December 30, 2015). When the report is published we will post a link to it on our blog. In the meantime any questions can be directed to the author at: email@example.com. An earlier version of this article was published in Dollars & Sense (Nov/Dec, 2015).