“Democratic Socialism,” preached by Sen. Bernie Sanders and others, seems like a pretty good dream. The problem is, it is just that — a dream.
Imagine a nation where higher education is free for everyone and nobody pays a dime for superior health care. Of course, the money has to come from somewhere, so you also have to imagine having blinding high income taxes and even a confiscatory wealth tax on people that own nice things — or at least things that are nicer than what others have.
Before looking at the financial details (something most supporters are loathe to do), let’s have a peek at the hypocrisy behind the plan. Who really wants free college and free health care? Obviously, if they were truly free we’d all want them, but, we know they aren’t free and somebody has to pay the bill. But, nobody likes paying bills, so who really wants this free largess?
When it comes to free higher education the answer is pretty easy even if you don’t have a college degree. A recent Bankrate poll found free higher education was supported by 77 percent of people under the age of 30. No big surprise there — college students want free college. But what about free universal health care? In this case I’d expect support from the opposite age demographic, but it turns out again that it’s the young and healthy that also want free health care. An Associated Press survey found over two-thirds of those younger than 34 support free universal health care.
So what do millennials and government-funded higher education and health care all have in common? Well, for the young the dream really is no dream at all. In fact, a study by the non-partisan Tax Institute found that only 11 percent of all tax revenue is paid by people under the age of 35. All the good stuff really is free to supporters of Democratic Socialism because they don’t “pay their fair share” (their phrase, not mine).
Now let’s look at the details of how their plan is supposed to work. But, to understand its fallacy, a quick summary is needed first. According to the well-worn model of the Social Democracy crowd, old people are rich so just tax away most of their income and net worth and use it to pay for all the free stuff for young people. It sounds so simple, but as Tennessee Williams once observed, “simplicity doesn’t exist except among simpletons.”
Let’s take free higher education. Mr. Sanders has a plan for the federal government to foot about two-thirds of the bill with the states picking up the other third. Just focusing on the federal part he estimates the cost to be about $47 billion per year — rising to about $75 billion per year in a decade. Not exactly chump change, but also not an entirely impossible amount.
Now let’s look at free universal healthcare. For this expense the cost is a lot higher, and the estimates vary widely. Mr. Sanders pegs the annual cost to the federal government at about $1.4 trillion. Others — plenty of others with no political axe grind — put the cost between $2.5 and $3 trillion per year. Let’s just take a rough average and say about $2 trillion per year would be a fair estimate.
OK, it’s time for a reality check. $2 trillion for health care and $45 billion for higher education — again let’s be generous and keep the total at just $2 trillion. Now let’s add part “B” and tax the rich to pay for it. Rep. Alexandria Ocasio-Cortez plans to get the money by taxing those with incomes over $10 million per year at a 70 percent rate. That may be a fine policy, but it only raises about $70 billion per year. That’s barely enough to pay for free education, and it also assumes the wealthy don’t change or shift their income streams out of the United States though careful tax planning — and they will.
Sen. Elizabeth Warren has a different approach to raise the money. Her idea is to just confiscate 2 percent of everyone’s net worth over $50 million every year, and tack on an extra 1 percent for those over a billion dollars. Ignoring her plan’s substantial legal and operational flaws, she touts that it would raise about $2.75 trillion over 10 years — so really only about $275 billion per year. Now let’s add in AOC’s take of $70 billion from increased income taxes and the grand total is about $345 billion per year.
So, leaving the rich with only 30 cents out of every dollar they earn, and also taking 2 percent of everything they own every year, gets us less than a fifth of what is needed — remember, the bar tab for free education and free universal health care is about $2 trillion. The math isn’t difficult, but when you add it all up, Democratic Socialism is where dreams go to die.
• Kevin Cochrane teaches economics and business at Colorado Mesa University, and is a visiting professor of economics at The University of International Relations in Beijing.