Sanders’s agenda is not limited to taxes on corporations and wealthy families. The campaign also proposed to partially finance Medicare-for-All through 4.6% of GDP in new tax revenues from broad-based payroll taxes and tax-preference eliminations (within health care). However, even if one uses the inflated revenue figure of 8.6% of GDP (4.0% from the wealthy and 4.6% from broad-based taxes), it still falls far short of financing Sanders’s spending promises. Sanders proposed $23 trillion in new taxes over the 2021–30 period, yet also proposed a $30 trillion Medicare-for-All plan, $30 trillion government job guarantee, $16 trillion climate initiative, and $11 trillion for free public college tuition, full student-loan forgiveness, Social Security expansion, housing, infrastructure, paid family leave, and K–12 education. That is $87 trillion in spending promises, on top of a baseline budget deficit that, at the time, was forecast at $13 trillion over the decade. Even the rosiest revenue estimates of Sanders’s tax policies would cover only a small fraction of his spending promises (see Figure 9).
At the same time, Sanders has obfuscated the funding shortfall by: 1) regularly claiming that his tax policies can cover all his spending promises, even as official scores show otherwise; and 2) proposing most spending increases separately, in order to make each one appear individually affordable within his broader tax agenda.
Summary: Some progressives suggest that Bernie Sanders has identified extraordinary potential revenues from taxing the rich. However, his proposed tax increases on corporations and wealthy individuals show revenues of 4% of GDP—and that is before accounting for constitutional challenges and unrealistic tax rates that far exceed the consensus of revenue-maximizing rates. Given behavioral and economic responses, the total potential tax revenues are (at most) 2% of GDP, and possibly far less. Indeed, leading progressive tax officials assume plausible tax rates and revenues far below those of Sanders’s proposals. Even assuming Sanders’s full static revenue estimate and including his steep middle-class tax proposals would not come close to paying for his spending agenda. The contention that Sanders has unlocked an enormous tax-the-rich revenue source is false.
Pension spending increased in all of the 10 largest American cities over the last decade, with a few cities experiencing a doubling or even tripling of their expenditures in 2021 dollars.
Almost all cities saw an increase in pension spending per employee.
There is large variation in the amount per employee that American cities are spending on pensions.
To respond to rising pension demands, some cities have reduced employment, often in the area of public safety.
A worsening market environment for pension funds will necessitate increased pension expenditures by cities in 2023 and beyond, exacerbating pressures to limit or reduce employment and, thus, city services.
Guaranteed jobs or UBI are poorly targeted and do not match the needs of new workers and may even hold them back by offering the sort of guarantees that perpetuate wage stagnation. Instead, the new safety net should offer various programs to smooth out dips in income and offer benefits that are not tied to a single employer, including:
Wage insurance—benefits that account for a drop in income, not just a loss of employment
Income averaging—tax rates based on income over three or five years, not just a single year, which will make income more stable for workers in variable work arrangements
Providing contingent workers the opportunity to receive benefits, such as health care and sick leave, that are not tied to traditional employment
To protect themselves against income risk, Americans have resorted to stagnation. We can provide downside protection in alternate ways—so that Americans can feel more free to switch jobs, try alternative forms of work, or start new companies. The above-mentioned programs are a more cost-effective and efficient way to address the needs of the new labor force than the guarantee-oriented policies that receive more attention. These programs provide options that would provide more robust insurance that can help spur a more dynamic economy. The options are merely a starting point to think more creatively about how to support a changing economy and break the cycle of stagnation.
State governments often operate with limited administrative and technical resources and are highly vulnerable to lobbying by interest groups. Medical providers—physicians and hospitals—are well represented in state capitols, and they frequently push legislatures to mandate that insurers pay for services that they provide, as a way to increase the sales (and prices) of these services.
The typical state had fewer than one benefit mandate in 1970; by 2017, the average was 37. James Bailey of Temple University has estimated that each benefit mandate enacted by states tends to increase health-insurance premiums by 0.4%–1.1% and that new mandates were responsible for 9%–23% of premium increases during 1996–2011. Benefit mandates may have added value to insurance coverage by preventing insurers from leaving gaps in coverage, in order to deter sicker individuals from enrolling. Still, in a study of the period 1989–94, Frank Sloan and Christopher Conover of Duke University estimated that 20%–25% of Americans without health insurance were deterred from purchasing coverage because of the added costs resulting from benefit mandates.
Lobbyists for hospitals and physicians have similarly pushed states to enact laws that increase their pricing power, by making it hard for insurers to exclude them from networks of covered providers. When HMOs began to squeeze hospital costs in the late 1990s, more than 1,000 bills were introduced in state legislatures. Most states enacted laws requiring insurers to reimburse “any willing provider” for treatment according to their standard payment arrangements. A study by Maxim Pinkovskiy of the Federal Reserve Bank of New York found that anti-HMO state laws drove up the incomes of medical providers, increased service use, slowed reduction in hospital lengths of stay, and caused U.S. health-care spending to increase by 2% of GDP—accounting for much of the growth in health-insurance costs in the early 2000s.
Members of Congress have increasingly demanded large tax hikes on upper-income families to finance large spending increases on top of soaring baseline deficits. But even the most aggressive tax hikes on the rich would make only a small dent in the long-term budget deficits, and they would significantly harm the economy. Before considering any new taxes, lawmakers should first reduce federal spending benefits for high-income families. This bipartisan strategy would achieve both the redistributive goals of the left and the spending restraint goals of the right.
Such upper-income spending cuts have several advantages over new taxes: 1) they will not harm economic growth, 2) they increase future policy flexibility, 3) they are better targeted, and 4) they promote political compromise.
Several programs target spending to wealthy Americans. This report focuses on three of the largest: Social Security, Medicare, and farm subsidies, where basic reforms could save upward of $1 trillion in the first decade, and substantially more in future decades.
The New York tax burden is already punishing enough. New Yorkers pay a greater percentage of their earnings to the state than residents of any other state. The total tax burden, on top of federal taxes, amounts to 12.79 percent of income, according to a new study. Opponents of the latest tax increases claim that the state’s punishing rates are responsible for driving high earners and businesses away, and indeed the state consistently faced massive levels of net outmigration to other states even before the pandemic. That migration has included thousands of jobs in areas like financial services. Among the firms that have relocated significant jobs away from the city are Credit Suisse, Barclays, UBS, and AllianceBernstein, according to a recent Forbes article. Goldman Sachs has moved a big-money management division to Florida, and hedge fund manager Carl Icahn has decamped there as well. The Empire State’s taxes are one reason that former hedge fund manager Leon Cooperman said, “I suspect Florida will soon rival New York as a finance hub.”
While America’s real GDP fell in 2020, states and local tax receipts actually increased—once you add in federal aid, revenues actually grew by nearly 10 percent. As their costs from fighting the pandemic grew and layoffs loomed, Congress rightly stepped up to help. There’s been $360 billion in direct relief for Covid-19 and hundreds of billions more in indirect aid—all told, Washington sent more than $1 trillion to states and localities last year.
Then there are states like Hawaii, where cratering tourism has left the state in a $1.8 billion budget hole, with tax revenues not expected to recover until 2024. Florida and Nevada are also missing their frequent flyers after tax receipts plummeted by 7.9 percent and 13 percent, respectively. States dependent on taxing energy and mining, such as Alaska, North Dakota, Texas and West Virginia, have seen their own devastating budget hits. And sales-tax-dependent states like New York wound up in worse shape than those reliant on less volatile revenue streams like Vermont, where 32 percent of revenues come from property taxes. In all, 26 states saw their tax revenues decline in the first 10 months of 2020.
But every state’s been a winner this past year with the federal government, whose aid to states and localities rose an astonishing 42 percent. What might have been a $331 billion budget shortfall due to COVID-19 instead came to a $165.5 billion dip, according to Moody’s, and that’s before counting $79 billion in state rainy day funds. Federal aid also propped up businesses and households, which led to economic activity and hiring that boosted state and local tax revenues, while also hiking taxable unemployment benefits. Having the Federal Reserve goose the stock and housing markets with super-low interest rates didn’t hurt either.