Alexandria Ocasio-Cortez (AOC), a newly elected congresswoman from New York and avowed Democratic Socialist, has recently attracted attention by vociferously advocating that the top one per cent of income earners in the United States be taxed at a marginal rate of 70%. The IRS reports that Americans earning in excess of $600,000 per year compose the top 0.9 percent of income-earning families. Let that be the proxy for the 1 percent AOC wishes to tax. In 2016, this richest 0.9 percent earned c. $1.7 trillion in taxable income and paid about $530 billion in taxes.
I have read on several occasions that if the richest one per cent were taxed at a 100% rate there would not be enough revenue to take care of the spending and subsidizing plans of the socialists. If true, that means that the cornucopia of socialist “goodies” promised could not come simply by making the rich pay “their fair share” of taxes.
Let us assume, therefore, that the entire $1.7 trillion were taxed. Would that cover the expenditures AOC wants to make for her “Green New Deal”? (See Jeff Stein’s January 5, 2019, article “Ocasio-Cortez wants higher taxes on very rich Americans” in a Washington Post online article). Let us review Jeff Stein’s “back-of-the-envelope” estimates for socialist programs. To fund the single category of “Medicare for all” revenues would have to increase by an estimated $30 trillion over a decade, or $3 trillion a year. Voila! That exceeds the $1.7 trillion of income for the top 1% income earners.
But of course no self-respecting socialist like Alexandria Ocasio-Cortez would want to leave it at that. Socialists believe the government should be obligated to take care of people as governments do in Europe, which would include at least the following expenditures. Bernie Sanders’s free college tuition plan of $800 billion would cost roughly $47 billion/yr. To forgive more than half the student debt in America ($1.4 trillion) would cost about $82 billion. To pay for Democratic leaders’ plan for boosting teacher pay and school funding ($100 billion) expenses would rise again. Nor would all these expenditures cover funding for a $1 trillion infrastructure plan. According to an editorial for Investor’s Business Daily, Stein reports that moving the economy away from fossil fuels to 100 percent renewable energy will come “at a cost of about $5.2 trillion over 20 years” or about $260 billion/Yr.
Looking at the most important of these AOC programs the total cost per year, at least for about two decades would be
Medicare for all $3 trillion
Free College Tuition $47 billion
Forgive ½ Student Debt $82 billion
Infrastructure $59 billion
Renewable energy $260 billion
Annually, that comes to $448 billion per year for the next nearly two decades. That, of course, is greater than the $1.7 trillion of income of the AOC 1% target. Of course, these estimates are rough and simplistic; projected costs often leave out as yet unknown considerations that will tend to make reality look different as the spending begins. Quite often, however, cost estimates end up being inaccurate because of “cost overruns,” which can often demonstrate the cost estimates were overly optimistic or even deliberately, unrealistically low.
Environmental expenditures for the AOC Green New Deal would include, among other things, expanding renewable-energy sources until they provide 100 percent of the nation’s power; building an energy-efficient “smart grid;” upgrading every residence and industrial building in the U.S. for energy efficiency, comfort, and safety; eliminating greenhouse-gas emissions for industry and agriculture; funding “massive” investments to draw down greenhouse-gas levels; and making the United States a leader in the use and export of green technology. These costs, listed above as “renewable energy” would assuredly greatly exceed the $260 billion listed.
These estimates focus on annual spending amounts for the various programs currently being promoted by Democrats. Other estimates are made for the total costs of the individual programs over a decade. It has been estimated, for example, that the Green New Deal would cost about $93 trillion over a decade. $32.6 trillion is the estimated cost of “Medicare for all” for that same period.
Legislation securing this spending program is not likely to be forthcoming even from the typical Democrat and Republican congresses of recent U.S. financial history. Both parties have accepted the basic doctrine of tax < SPEND over many past decades, having rather completely lost the notion of a budget constraint. But there is no financial methodology that could make this kind of spending viable. It would represent the end of the U.S. economy.
It may be said that socialism is dead in the Western world because socialism’s only policy advocacy is income redistribution, and that policy is accepted and promoted by non-socialists as well. So what is it that the socialists have to advocate? It’s not complex. They attempt to justify their position by advocating far more spending than the political right does and before the right can even think of additional spending programs. This financial analysis of current socialist advocacy in the United States does not even include all the spending ideas of socialists. It does not include, for example, the guaranteed universal income the government would give to every U.S. citizen. Whether sooner or later, this universal, personal income (independent of any employment) will be in the public discussion. And what if expenditures exceed revenues? Socialists will simply say, “so what?” That’s nothing new!” We won’t go here into fiscal consequences, but we will be learning about them once again in the news at the next European fiscal crisis. Until then, quite a bit is being said about the fiscal situation currently prevailing in Venezuela.
