WASHINGTON — Three years after President Donald Trump rode a wave of populist anger into office, some of his top Democratic challengers are calling for a fundamental reordering of U.S. capitalism, arguing that voters will embrace bold plans to reverse decades of rising inequality by raising taxes on corporations and the rich.
The $20.5 trillion proposal for “Medicare for All” released by Sen. Elizabeth Warren of Massachusetts on Friday is the most prominent example of how a party that once bet on centrist economic policies to win elections is moving toward far more ambitious efforts to redistribute wealth and expand the government’s role in the economy.
In doing so, Democrats are trying to push the boundaries of how much a country can rely on a sliver of high-end investors and other wealthy citizens to fund widely used social programs and bankroll other services traditionally paid for by individuals.
Warren, who is leading in polls, has proposed a wealth tax on billionaires, along with new taxes on corporations and financial transactions like selling or buying stocks. Sen. Bernie Sanders of Vermont has embraced raising taxes on billionaires and corporations, as well as on the middle class, to fund universal health care, free college, clean energy and other government programs. Another Democrat who is climbing in the polls, Pete Buttigieg, would reverse Trump’s corporate tax cuts to pay for a less expansive and expensive health plan and has also expressed support for higher taxes on the rich.
Liberal champions of these proposed shifts say they would restore economic fairness and security to millions of Americans who have fallen behind as the economy tilted in recent decades to favor the very rich. Conservative critics say they would cripple business investment, slow economic growth and dissuade future entrepreneurs.
While those objections may have held sway in the past, support for economic programs that redistribute wealth has grown along with voters’ increased anger toward big business and a sense that companies and the rich should pay a larger share of taxes. The top 1% of Americans held 29% of the nation’s wealth in 2016, according to the Federal Reserve, more than the combined wealth of the entire American middle class.
The proposals are a sharp departure from the recent past, both for Democrats and for the terms of political debate in a nation that for several decades rewarded candidates who promised to reduce taxes and scale back government’s role in the economy. While Democratic candidates often tiptoed around tax increases on banks or the rich, both Warren and Sanders have made tax increases a centerpiece of their campaigns.
Warren’s Medicare for all plan by itself includes $20.5 trillion in new government spending over a decade. The plans include direct repudiations of some policy initiatives of President Barack Obama, who sought to reduce corporate tax rates to bolster competitiveness for U.S. businesses, and whose health plan tried to enhance, rather than replace, the existing private health industry.
Supporters say the candidates are reacting to voter frustration over sluggish wage growth and spiking costs across working families’ lives, including housing, child care, schools and health care, along with concerns about inaction toward climate change.
“I think people don’t care as much about taxes as they care about how their life is going,” said Betsey Stevenson, a University of Michigan economist who helped develop a list of possible tax increases and spending cuts that Warren drew on to fund her health care proposal.
“Our climate problems have only gotten worse,” she said. “Corporate greed has only gotten worse. We’ve continued to see the gains go disproportionately to the top. And we’ve continued to see the bottom 90% — it’s just not all working for them.”
Those concerns have been exacerbated by Trump’s economic policies, including a $1.5 trillion tax cut, which delivered its biggest gains to corporations and wealthy Americans, and has yet to produce the sustained investment boost and accelerated wage gains for middle-class workers that the administration promised.
In the decadelong recovery from the Great Recession, real incomes for the top 1% of U.S. households have risen 38.5%, according to research by economist Emmanuel Saez at the University of California, Berkeley. Incomes for the bottom 99% grew 10% over that same time frame.
Still, not every Democrat is embracing the type of aggressive redistribution that Warren and Sanders propose. Former Vice President Joe Biden wants to reverse Trump’s tax cuts for corporations and the “super wealthy” and raise taxes on investment gains for multimillionaires. But he has criticized Medicare for all, proposing instead to expand Obama’s Affordable Care Act, in part by giving Americans the option to buy into a government health plan — all funded by increased tax rates on capital gains.
Representatives for Biden said Friday it was not possible for Warren to pay for her plan without raising middle-class taxes, a criticism she brushed off while speaking to reporters in Des Moines.
“If anyone wants to defend keeping those high profits for insurance companies and those high profits for drug companies, and not making the top 1% pay a fair share in taxes and not making corporations pay a fair share in taxes,” she said, “then I think they’re running in the wrong presidential primary.”
But conservative economists who have long argued that tax cuts are the best fuel for economic growth and rising wages said Friday that Warren’s planned tax increases on corporations would rebound to hurt the middle class — along with everyone else.
“This would be pretty dramatic,” said Nicole Kaeding, an economist who is the vice president for policy promotion at the National Taxpayers Union Foundation, a Washington nonprofit that promotes lower taxes.
“Capital drives the U.S. economy,” she said. “Investment increases productivity, it creates jobs, it raises living standards and wages. Slowing or handicapping investment would negatively affect everyone in the United States.”
Warren's plan would move the costs of the entire U.S. health care system, which she pegs at just under $52 trillion over the next decade, onto the books of the federal government. She says that would reduce overall health spending and spare Americans the financial burden of paying directly for care.
To cover those costs, Warren would impose a new tax on financial transactions, like buying and selling stocks and bonds. She would also tax profits from investments that increase in value on an annual basis — like shares in Google or Apple — not just when the assets are sold. She would raise taxes on U.S. companies that book profits overseas.
Warren would also increase her wealth tax on billionaires to 6% of the value of all their assets above $1 billion, up from her previous proposal of 3%. And she would assess a tax on corporations that roughly equates to what they currently pay for employees’ health care, with a slight savings.
Warren says none of those tax increases would hit the middle class. Republicans mocked that claim.
“Hahaha,” Sen. Ben Sasse of Nebraska said in a statement. “This make-believe math is bonkers.”
Many analysts, including some Democratic economists, say it is unclear if Warren’s combination of new taxes — including some never tried at this scale in the United States — can raise anywhere close to the revenue she estimates.
Perhaps the biggest unknown is how the capitalist U.S. economy would function with levels of taxation and spending more comparable to the social democracies of Scandinavia.
“It’s as much an art as a science, trying to figure out the economic effects of policies we haven’t seen before,” said Diane Lim, a former economist for congressional Democrats and senior economist at the White House Council of Economic Advisers, who now works for the Penn Wharton Budget Model. “I’m worried it’s unrealistic. It’s just unknown.”
Polls suggest a wide range of Americans support raising taxes on the rich, and in particular a tax on the very wealthy. They also show increased numbers of Americans saying the government should do more to help them. Those trends, in addition to the concentration of wealth at the very top, are helping to drive Democrats toward more efforts to tax the rich and redistribute through the government, said Gene Sperling, a National Economic Council director under Obama.
“The expansion of economic concentration and wealth inequality has put a greater focus on the top one-tenth of 1%,” Sperling said, “both because of the obscene economic inequality it signifies and as a practical matter, there is just more revenue to capture there than 30 years ago.”
Sanders has said explicitly that he hopes the days of the American billionaire are numbered.
“What we are trying to do is demand and implement a policy which significantly reduces income and wealth inequality in America by telling the wealthiest families in this country they cannot have so much wealth,” he said in an interview in September.
For all its detail, Warren’s funding proposal leaves a lot of questions unanswered. Many of them relate to how the new batch of taxes she proposed Friday would interact with the nearly $10 trillion in tax increases she has already proposed for corporations, high earners and the wealthy.
Kaeding of the National Taxpayers Union Foundation said she worried that with Warren’s latest batch of tax increases, some investments could end up with an effective tax rate of more than 100% — meaning that investors would have to pay the government their entire gains on investment, and then some. She noted that the combined corporate tax increases would give the United States the highest effective corporate tax rate in the world among wealthy nations. Both would hurt growth, she said.
Liberal economists sometimes share those concerns, to a lesser degree. Mark Zandi, the chief economist at Moody’s Analytics, who also helped develop Warren’s list of tax increases to fund Medicare for All, said that raising taxes on businesses and the rich would hinder growth, but not as much as raising taxes on the poor and middle class would. He also said economists would need to model the effects of increased government spending on health care and potential cost savings to consumers.
“There will be, all else being equal, negative effects for sure” from the tax increases, Zandi said. “But there’s also the benefit of where that money is going. Where that shakes out, we will have to see.”
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