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The Bernie Sanders tax plan to pay for his ambitious expansion of government social programs is riddled with flaws and risky assumptions.
If implemented, the Bernie Sanders tax plan would cause the annual federal budget deficits to balloon, dramatically increasing the already dangerously large $18.4 trillion national debt. And many of Bernie Sanders' tax proposals would have dangerous side effects.
To be fair, the Vermont senator and candidate for the Democratic presidential nomination has all the best intentions. It's plain that he sincerely wants to help people. But America can't afford what he's proposing.
Sanders' policies, rooted in his socialist philosophy, include free public college tuition, an expansion of Medicare to all, universal childcare, and the rebuilding of infrastructure.
This week, Reuters columnist Daniel Indiviglio added up how much that would cost over a 10-year period and came up with a total of $12 trillion.
But the Bernie Sanders tax proposals intended to pay for it all - including a tax on overseas corporate profits and higher taxes on the wealthiest Americans - only add up to about $4 trillion. That's a gaping $8 trillion hole.
And some parts of the Bernie Sanders tax plan would have a dramatic impact on the markets as well as the U.S. economy.
For example, Sanders would like to eliminate the deferral U.S. corporations use to avoid paying the 35% corporate tax on foreign earnings. U.S. companies hold about $2.1 trillion overseas.
But making companies pay the full 35% tax on that money - and forcing companies to pay taxes on foreign profits as they are earned - would take a hefty bite out of the earnings of big multinational corporations.
Stocks of many big multinational companies, such as Microsoft Corp. (Nasdaq: MSFT), General Electric Corp. (NYSE: GE), and Pfizer Inc. (NYSE: PFE), would suffer.
One also has to wonder what kind of new strategies they would devise to reduce what they owe. That would reduce the projected $600 billion in revenue Sanders expects and would use to help pay for $1 trillion in infrastructure spending.
But another part of the Bernie Sanders tax plan would have an even bigger impact on Wall Street...
How the Bernie Sanders Tax Plan Would Crush the U.S. Economy
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
Here's what everyone ignores about the cost of Bernie's expanded social programs– the value of the cost savings.
The private-for profit medical business in the US extracts 18% of US GDP. That compares with around 11% of GDP for every other developed nation. That extra 7% means that Americans are paying 39% more than people in places like Germany, the UK, Canada and Australia are paying for medical care. The difference is that their governments either actually deliver medical services or they tightly control the system of insurance and medical service.
If the US were to nationalize the US for profit system, it could also squeeze out the layers of massive corporate executive salaries and stock options and massive profit extraction that add up to the extra 39% that Americans are paying compared to their compatriots in the rest of the world. The cost of providing medical services to Americans would be reduced toward the world wide average.
No one seems to consider the financial benefit Bernie's plan would afford to American businesses and to individuals who must now bear the additional 39% added cost of medical services which the US medical industry imposes on the American people.
This would also be true for the cost of education, which is orders of magnitude higher in the US than elsewhere in the world due to the financialization of higher education in the US versus the model of the rest of the world where higher education costs are heavily subsidized and government has a say in costs.
Would Americans have to pay more taxes to have these benefits? Sure. But the cost savings to US business and individuals who would no longer need to fork over the costs of medical insurance would be immense. Obviously if a system that charges 18% is abolished in favor of one that charges 11%, it would result in a net savings to Americans. It would also allow US based businesses to be more competitive with foreign businesses who, unlike US business, do not need to bear the medical insurance costs of their employees.
Nationalization of the US medical business would be a win for American business and for the American people. We already have proof that Americans would save a lot of money if the medical industry were nationalized. That proof is called "the rest of the world." So when we talk about the cost of Bernie's programs, let's look at the financial benefits as well. Only then can we really understand just how much value these programs may or may not have for America.
When you understand that it's not meant to be an honest discussion of issues, you'll understand how and why people could talk about these changes from one perspective (cost) and leave out the savings.
Yeah……but I dont want to pay more taxes. Am I not entitled to what I have earned?
Heres the interesting thing. Looking at these nations you so admire, their income tax rates, their sales tax rates, their inflation, the speed at which their economies grow compared to ours etc. I look at this and see their current status as what we will become if sanders is elected (god forbid). These nations are doing most or all of the things sanders is proposing and i see miniscule economic grow in Finland, a recession in France, a 180% tax on Danish cars, I could go on. No this is not worth what sanders is proposing.
Not only this but throughout your response you do not directly challenge whether or not what Mr. Zeiler said is right or wrong. If he is right (and he is) then quite frankly what you have said means absolutly nothing in the grand scheme. Any saving anybody would make (and i don't believe in total when forced to pay high taxes on everything else but let's say they did), taxes would have to be raised in order to account for all the holes in Sanders' proposal Mr. Zeiler outlined. Sanders will have taxed the hell out of the rich already so what happens next?…..
Look at what I have written below. Your fears are completely unfounded. Taxation is little more than a cost. It destroys excess money the Fed puts into the economy by deficit spending. The government can always pay what ever the economy needs even if tax receipts fell to zero.
Tax is no excuse to say such and such an idea cannot be supported. It can.
Western economies need governments to get spending and having full employment [<2% unemployment] would be a good beginning.
The article spreads fear – bad idea. No president can do what he/she wants, there is always Congress to make the laws. That is the old checks and balances system. Sanders is right when he sees many things in the country not functioning right. That is to a large extent the fault of the ideological Republicans and now the pendulum swings back. Normal procedure.
The US is a miserable country to live in if you are among the bottom 90%.
Would you rather be in the bottom 90% of America or the average country where the average wage is $16,000?
If you hate it at the bottom 90%, then make yourself marketable. Go to college, obtain a marketable profession. Make something of yourself. If I could do it a a single mother of four, making 2$/hr in 1983-1986, when I graduated and increased my pay to a whopping $10.96/hr, then you can too. That was an increase of $9/hr just by biting the bullet and working hard in college to provide for myself and my family. And no, because I worked hard to get high grades to qualify for academic scholarships, it is not unfair that you earn less when you didn't. I also have used several thousand dollars of my own money to contribute and to fund my own medical missions to third world countries. Have you? Has Bernie?
So do you really think keeping the status quo is taking us in a good direction? Sure the corporations want to keep their financial power and status and of course Wall Street wants to keep all their money and sure the stock market will be affected, in fact, your very business will be affected. Yes, the financial and corporate oligarchy will be broken up and will lose their grip, and that is good and healthy. Change will bring the gnashing of teeth to some, but change and transformation is required. The leaky ship we are sailing on needs a drydock and an overhauling. Who knows, we may even create a government of the people, by the people and for the people.
I guess if Greece is your idea of a government by and for the people, then the Sanders plan is quite good.
Criticism of Bernie Sanders "socialist" agenda is utter rubbish!!!
The Federal Government can EASILY support free education, free health care for all, and full employment etc.
All it has to do is put deposits in recipients accounts, those who actually do the work, actually employ people, actually build stuff. The Federal Government can NEVER GO BROKE in American dollars. After all it created the currency, it regulates the currency and it can spend the currency with NO REGARD to any taxation receipts. Taxation does not contribute even one cent to Federal government expenditure, so there can be no restriction there. The Fed can also pay the States for budget shortfalls, no problem.
All the West 's economies are in deflation. Since the practical limit to government spending is excess inflation, the output gap between deflation and excess inflation is today in the $ Trillions!
Bigger deficits are the economy's answer to deflation! And if we didn't have inflation there would be mo market for mortgages, as housing would never match the total cost of the repayments. We NEED inflation, the economy of Capitalism can not function without it. The Fed cannot get into debt as it never has to borrow or pay for the currency it spends. It does not "print" money, it just pays as it goes.
Only political bastardry stands in the way of a better society. There is NO economic impediment.
Criticism of budget deficits is just wilfully destructive propaganda, so Sanders proposal should be lauded. It's only a tiny first step but a necessary one.
See how far Zimbabwe got with its phoney money printing nonsense. Paper is not economic productivity.
Money Morning does not like the Sanders program because it will affect Wall St and help the working class on main street.
I support the Sanders program its about time you folks in Wall Street like Money Morning invest in the Working Class which bailed out Wall Street during the crash. Feel The Bern!!!
So you want America's debt to rise trillions of dollars extra and become like Greece?
I want someone to tell me what the big differences are between the Greek and Venezuelan governments and Sanders ideas for the US, because I assure you there are none.
Actually, Greece is one of the only countries in the world that is considered a true capitalist system. Greece economy fell due to the injection of debt capital and growth of the fiat. True capitalism does not endure finance. Both republicans and democrats are debating from a false premise about economics. This is due to the indoctrinated ignorance of the voters. The US is a mixed economy. Europe is a market economy. Socialism does not exist except in the diluted forms in countries which still have a active Monarchy. Socialism means that the government owns the sources of all production – everything is nationalized including the banks. Very small countries can endure this – Denmark is small. And, European nations do not have independent states within their governments. The US is a federation of states, each with their own governments and it took an "act of god" to get the states to use a national currency. I do not see single payer as an option for the US. We have to look at the history and the reality. Much can be improved and more regulation is needed, but to corner the discussion into all or nothing terms, defeats everyone.
It is about time we discovered the real Bernie (the Bern) Sanders