Growing Socialist Trend Could Bankrupt America

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 14, 2018

1. Overview – Democratic Socialism on the Rise

2. A Price Tag For the Democratic Socialist Agenda

3. How to Pay For the Democratic Socialists’ Agenda

4. Pure Socialism Doesn’t Work Anywhere in the World

Overview – Democratic Socialism on the Rise

With the loss of their majorities in the House and Senate in recent years, and with the loss of the White House in 2016, the Democratic Party has been moving steadily to the left (liberal) side of the political spectrum and an increasingly socialist agenda. Some high-profile Democrats including Sen. Bernie Sanders, former DNC Chairwoman Debbie Wasserman Shultz and recently Alexandria Ocasio-Cortez (Democratic nominee for House seat in New York) and others have been very public in their positions advocating socialism.

Generally speaking, their socialist agenda includes: government-provided healthcare (Medicare for all), guaranteed jobs for all, $15/hour minimum wage, paid family leave, free college and the forgiveness of student loans, among others. Not that this socialist-leaning agenda is going to be enacted anytime soon (or ever for that matter), the question is, how much would all this cost? And how would we pay for it?

A new study from the non-profit Manhattan Institute’s Brian Riedl takes an in-depth look at the estimated costs of these programs being touted by self-described “democratic socialists,” and the numbers are staggering! Using some generous assumptions, Mr. Riedl estimates total additional costs of at least $42.5 trillion over 10 years. That’s more than double our current national debt of $21 trillion! And in most cases, it doesn’t include what we’re already spending.

To pay for these programs, income taxes and other taxes and fees would have to skyrocket. The economy would tank, or worse. That’s why every American – conservative or liberal – needs to be aware of these frightening numbers. I’ll summarize the report for you below, and I encourage you to share this information with others.

A Price Tag For the Democratic Socialist Agenda

A number of policy proposals associated with the “democratic socialist” agenda of Bernie Sanders, Alexandria Ocasio-Cortez and others are gaining ground in the Democratic Party and will likely play a role in congressional races this fall. The question on both the left and the right is, how much would it cost Americans to live in a country that more closely resembles the social welfare countries of Europe, and are taxpayers willing to pay the bill?
Sanders
Brian Riedl, a tax and budget expert at the non-profit Manhattan Institute, examines the costs associated with some of the far left’s most popular policies, including a single-payer healthcare system, a jobs guarantee, $15 minimum wage, free college education, forgiving student loan debt, etc. Using a host of generally favorable economic assumptions (no recessions, for example), Riedl finds that the basket of proposals would increase federal spending by $42.5 trillion over 10 years. And the cost would almost certainly be higher.

What follows are the basics of Riedl’s analysis, all on a 10-year basis.

Current federal revenue and deficit baseline for 10 years:

Baseline for tax revenues: $44 trillion
Baseline deficit: $12.4 trillion

Increases in federal spending from key democratic socialist proposals:

Sanders’ plan for single-payer healthcare: $32 trillion
Plan for a $15-an-hour job guarantee: $6.8 trillion
House Democrats’ student loan forgiveness plan: $1.4 trillion
Senate Democrats’ infrastructure plan: $1 trillion
Sanders’ plan for free college: $807 billion
Sanders’ plan for 12 weeks of paid family leave: $270 billion
Sanders’ plan to expand Social Security: $188 billion
Total additional federal cost: $42.5 trillion over 10 years

How to Pay For the Democratic Socialists’ Agenda

While a few of the programs would offer some savings – for example, a jobs guarantee would reduce anti-poverty spending -- Riedl concludes that paying for the proposals would create a tax burden that would rival or even surpass many European nations.

If all of the proposals became law, federal spending would rise to more than 40% of GDP, roughly twice the historical norm of between 18% and 22%. “There is no evidence that American voters will accept this level of taxation to pay for the programs,” Riedl writes.

As noted above, there might be some savings possible in current spending programs. Yet even if there were massive cuts in other programs -- such as slashing defense by half, or adding in phantom savings from supposed cuts in state healthcare spending and anti-poverty programs -- you still come up $34 trillion short over 10 years, Riedl estimates.

To raise $34 trillion, Riedl calculates, would require "seizing roughly 100% of all corporate profits as well as 100% of all family wage income and pass-through business income above the thresholds of $90,000 (single) or $150,000 (married), and absurdly assuming they all continue working."

Or, he said, you could go to a VAT tax -- a national sales tax on all goods and services. But it would have to be huge: a tax of 87% on everything you buy. Oh, and by the way, that still doesn't pay for the $12.4 trillion deficit that's already estimated that we discussed above. So you'd need even more taxes.

Those numbers are scary enough. But we're not even raising the issues of: 1) massive cost overruns in these programs, which are inevitable; or 2), whether these programs will work as described or instead end up ruining our free-market economy.

The bottom line is that if the tax proposals Riedl outlined above were adopted, it would indeed wreck the economy! Corporations are not going to give up 100% of their profits; stock markets would plummet. Pass-through businesses and families are not going to give up 100% of income above $90,000 (single) or $150,000 (married). Politicians are not going to pass a VAT tax of 87%.

For all of the reasons discussed above, it is easy to conclude that the Democratic socialist agenda is simply not going to happen. And it won’t, at least not all at once. Yet this does not mean the far left won’t continue to pursue these policies incrementally over time – especially with the increasing drift toward socialism in Congress.

Finally, it is true that all of the costs shown above are estimates for these policies and programs, and they could be wrong. Yet if they are wrong, I would bet they’re on the low side, especially if the government is running the programs.

Whether they are low or high, I think all Americans need to be aware of this. Please share this with others, or have them go to www.forecastsandtrends.com to get a copy.

Why Pure Socialism Doesn’t Work Anywhere in the World

As discussed earlier, a growing number of high-profile lawmakers, Hollywood types and liberals in general are popularizing the philosophy of democratic socialism, especially among younger age groups that have little knowledge about socialism.

Meanwhile, the Young Democratic Socialists of America (YDSA) are gaining influence on college and high school campuses, claiming to have organizing activities in place or planned at more than 250 campuses across the nation.

The YDSA website describes the group’s vision as “a humane social order based on popular [government] control of resources and production, economic planning, equitable distribution, feminism, racial equality and non-oppressive relationships” – the definition of socialism.

Thatcher
Many on the right question this vision and point to countries such as Venezuela and Cuba and many others as examples of socialist failures. Democratic socialists claim those countries implemented socialism “incorrectly” or that other factors are to blame.

They prefer to cite Norway, Sweden, and Denmark as examples of socialist success. There are, however, several key problems with that. You need to know why.

First, these Scandinavian countries are not technically “socialist.” By the YDSA’s definition, socialism entails a centrally planned and controlled economy with nationalized means of production. Although these countries have high income taxes and provide generous social programs, they remain prosperous largely because of their free-market economies.

Denmark, for example, ranks as the 10th most economically free country in The Heritage Foundation’s Index of Economic Freedom, which cites free-market policies and regulatory efficiency as reasons for the high standard of living. Sweden is ranked 15th and Norway 23rd, both with similar descriptions of thriving private sectors and open markets.

These three countries are clearly not operating under largely centrally-planned economies, or their economic freedom scores would be significantly lower.

Second, the success of these countries is clearly based on a capitalist foundation, and it predates the expansion of their social programs. Sweden, for example, became a wealthy country in the mid-20th century under a capitalist system with low tax rates. Most social programs and high tax rates were not implemented until the 1970s, which caused the economy to significantly underperform and unemployment to rise.

In recent years, Sweden has actually been privatizing socialized sectors, such as education and healthcare, cutting tax rates and making welfare less generous. Even though tax rates and government spending remain comparatively high, open-market policies generate most of the revenue to support the spending.

By contrast, America is a much larger country with lower levels of social trust, and therefore, a comparison is difficult to assess. Norway, Denmark, and Sweden are not democratic socialist countries that the US can be accurately compared with, and could be better described as “compassionate capitalists.”

As such, the “democratic socialists” -- as they define socialism-- are left with no successful examples of their vision, only disastrous ones. Keep this in mind when you hear liberals point to countries like Norway, Denmark and Sweden as examples of socialism’s success.

Think Cuba, Venezuela, North Korea, the former Soviet Union and others where pure socialism has failed miserably instead. I’ll leave it there for today.

All the best,

Gary D. Halbert

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