Sanders Plan Boosts Deficit $18 Trillion by 2026, Study Says

SANDERS NEW JERSEY

Senator Bernie Sanders pauses while speaking in Atlantic City, New Jersey, on May 9, 2016.

Photographer: Andrew Harrer/Bloomberg
  • Spending seen outstripping tax increases of $15.3 trillion
  • Negative effects on economy `could be severe,' report says

Despite Senator Bernie Sanders’s call for trillions of dollars of tax increases to pay for universal health care, expanded Social Security, college tuition and other benefits, the cost of his programs would boost the federal deficit by $18 trillion over the next decade, according to a new policy study.

That 10-year increase to the deficit, which is roughly equivalent to a year’s output for the entire U.S. economy, could “retard economic growth,” according to two reports released in tandem by the Tax Policy Center, a research group in Washington. Negative effects on the U.S. economy “could be severe,” the study concluded.

QuickTake U.S. Budget Deficit

Sanders has issued proposals to increase federal tax revenues by $15.3 trillion over the next decade, according to the study -- tax measures that would fall on all income levels, but would hit the highest earners the hardest. But federal outlays for his spending proposals would rise to $33.3 trillion over that decade. Annual deficits of $1.8 trillion would raise interest payments on the national debt, squeeze out private investment and raise interest rates, according to the reports.

‘Very Damaging’

“It could be very damaging to the economy,” said John Holahan, a fellow at the Urban Institute’s Health Policy Center and the lead author of one of the two reports.

Warren Gunnels, the Sanders campaign’s policy director, said in an e-mailed statement that the study “wildly overestimates the cost of Senator Sanders’s health care plan.”

Gunnels said the authors assumed that state and local governments would push their healthcare spending onto the federal government -- which he called “categorically false.” Sanders would require states and localities to maintain current levels of healthcare spending, he said. Also, he said, the report doesn’t address as much as $500 billion in annual savings that a doctors’ advocacy group says could be gained by reducing healthcare-related bureaucracy and lowering prescription drug prices.

The companion reports released Monday found that while Sanders’s tax increases would be felt throughout the income scale, the bottom 95 percent of households would receive more in benefits than they paid in new taxes. “Households in the top 5 percent would be worse off, with the average tax increase exceeding benefit gains by about $111,000, for a net loss of 17 percent of adjusted gross income,” one of the reports said.

Sanders, a Vermont senator who describes himself as a Democratic Socialist and is contending against front-runner Hillary Clinton for the Democratic presidential nomination, has proposed universal health care -- under which private insurance would be replaced by government-funded health care. That proposal alone would cost $32 trillion through 2026 -- more than twice the $15.3 trillion in revenue that Sanders’s tax plans would raise by then, according to the study.

Sanders’s campaign has said the universal healthcare plan would cost about $1.38 trillion a year -- less than half the amount projected in the reports.

High-Income Households

Under Sanders’s proposals -- which would be sure to face opposition in a Republican-controlled Congress -- all income groups would pay more tax, but most of the new revenue would come from high-income households.

Tax increases on the highest-earning Americans would generate about 25 percent of the new revenue. Sanders would tax capital gains -- a key source of wealth for the affluent -- as ordinary income and would raise marginal tax rates at the same time, taking the top rate on long-term gains and dividends to 54.2 percent from 23.8 percent.

The bottom fifth of U.S. households by income would see the largest net gain -- new benefits minus new taxes -- at more than $10,000 on average, the study said. The middle fifth would see an average net gain of $8,500.

Most of Sanders’s $15.3 trillion in new taxes would come from tax increases on individuals totaling almost $13.6 trillion and from a new 6.2 percent “healthcare premium” payroll tax, paid by all employers. Sanders proposes a base income tax rate of 28 percent, with graduated taxes on the wealthy on top of that. The wealthiest would pay a top rate of 52 percent. He would levy an additional 2.2 percent income tax on all taxpayers.

Only $1 trillion of the $15.3 trillion revenue would come from increased taxes on corporations, which would see average U.S. tax rates increase to 37 percent from the current 35 percent, the study said.

About $429 billion would come from new excise taxes on financial transactions and carbon emissions, and $237 billion would come from higher estate and gift taxes. Sanders would expand the estate tax to cover individual estates valued at more than $3.5 million, down from $5.45 million today. And he’d impose higher graduated rates on the largest estates, up to 65 percent for individuals with estates of at least $500 million, or at least $1 billion for married couples.

Overall, Sanders’ proposals “would grow federal deficits and the national debt to unprecedented levels,” the study said. “A plan substantially financed by borrowing could raise interest rates and impose a substantial drag on the economy.”

The Tax Policy Center is a joint venture of the Urban Institute and the Brookings Institution. It worked with the Urban Institute’s Health Policy Center on the reports released Monday.

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