20 January 2016

Bernie for Beginners: What does Sanders believe?


With less than two weeks until the Iowa Caucus, many people outside Washington, D.C. are beginning to focus on the 2016 presidential election marathon. The sustained popularity of real estate developer Donald Trump is already a surprise in the Republican race. Now the surge of Vermont Independent Senator Bernie Sanders is shaking up the Democratic race.

Conventional wisdom from political pundits held that former Secretary of State Hillary Clinton would face an easy path to the Democratic nomination. However, Sanders is now even with Clinton in Iowa and beating her in New Hampshire, which hosts the nation’s first primary.

Sanders, a self-proclaimed democratic socialist, has found success by railing against corporations and billionaires. His rise has energized millennials and progressives, but many undecided voters are still wondering: what exactly does Sanders stand for?

Here are three of Sanders’ main policy goals, which would bring democratic socialism to America—not what the country needs as its economic growth falters.

Combating Income Inequality

In last weekend’s Democratic debate, Sanders argued that “almost all of the new income and wealth [are] going to the top one percent.” Under Sanders’ worldview, the top one percent’s gains come at the expense of ordinary Americans.

“The real median income of male workers is $783 less than it was 42 years ago,” Sanders’ campaign website states. Putting aside the many problems with how income levels are measured over time, does anyone believe that members of the American middle class are worse off today than they would have been in the 1970s? Even Sanders admits that today’s Americans live in “the richest country in the history of the world.”

Thanks to the innovations driven by businesses and entrepreneurs (who are often funded by members of the top one percent), even those with relatively low incomes can fly across the country and access practically any piece of information with the computers that they carry in their pockets. No matter how much wealth Steve Jobs accumulated, his benefit to consumers of all incomes was thousands of times greater.

Sanders’ punitive income and investment taxes, his remedy for income inequality, would substantially lower the payoffs from successful innovation. Investors would lose 65 percent of their gains after taking into account corporate taxes and Sanders’ proposed 54.4 percent tax on investment income—all in the name of making the rich pay their “fair share.” Sanders also wants to tax all financial transactions, and this proposal would function as another deterrent to investment.

Political rhetoric aside, it is unquestionable that the top one percent already pays their fair share. In 2013, the latest data available, this group paid 38 percent of federal income taxes, even though they earned 19 percent of total income. Members of the bottom 75 percent of income earners—which includes the middle class and working class—paid 14 percent of federal income taxes, far lower than the 32 percent of total income that they earned.

Guaranteeing a Living Wage

Sanders is a long-time proponent of drastically increasing the federal minimum wage. He advocates $15 an hour, a rate he says would ensure that “no full-time worker lives in poverty.”

This concern is understandable. Even with welfare programs, supporting a family on the current federal minimum wage of $7.25 an hour is unbelievably difficult. But supporting a family without a job is even harder. And, thankfully, poor families are the exception when it comes to minimum wage workers. Over half of the 3 percent of American workers who earn the minimum wage are between 16 and 24 years old. Two-thirds work part-time.

Numerous studies have shown that increasing the minimum wage raises unemployment rates for young and low-skilled workers. Though some workers might see a pay increase, others will be out of a job. Employers always have the choice to let employees go, or not hire them at all. Sanders believes that he is leveling the playing field, but in reality his call for a $15 an hour minimum wage would remove the first few rungs of the career ladder.

Even unions, the top donors to Sanders’ campaign, realize the downsides of minimum wage increases for workers. As local governments across the country have passed higher minimum wages, unions have lobbied to exempt collectively-bargained agreements from the new wage requirements.

We can already observe the destructive effects of a $15 minimum wage in places such as Seattle, where businesses—especially restaurants—are struggling. A federal increase would be much more damaging. While the negative effects of a high minimum wage are real even in an educated, high-income area such as Seattle, they are much worse in states such as Alabama and West Virginia, which both have median hourly wages under $15.

Expanding Social Security

Sanders calls Social Security the most successful government program in U.S. history and seeks to expand it. But Sanders’ devotion to this old age benefit program blinds him to its coming fiscal disaster.

Contrary to the popular belief that Social Security is an earned “entitlement,” today’s typical seniors receive far more than what they paid into the program. This holds true even after accounting for potential investment returns if retirees had been allowed to privately invest their Social Security contributions.

Social Security’s problems are driven by ballooning beneficiary rolls and promised benefits that have outpaced the increase in funding. In 1940, the first year of monthly benefit payments, the program covered 222,488 Americans at a cost of $592 million in today’s dollars. Last year, it covered 59 million Americans, at a cost of $845 billion.

In 1940, 159 workers supported each retiree. This is a far cry from today, when there are 2.9 workers for each Social Security recipient, a ratio that is projected to fall to 2.2 in just 15 years. Longer life expectancies should, of course, be celebrated. But Social Security needs to be updated to take demographic changes into account.

Absent reform, the Social Security trust fund will be depleted by 2034. This means that in less than 20 years retirees will receive, at most, three-quarters of promised benefits. Young workers are being forced to pay over 15 percent of their hard-earned paychecks into a program that will not be there when they retire.

Sanders’ support for Social Security also fails to align with his crusade against income inequality. These entitlement programs function not only as wealth transfers from the young to the old, but from the poor to the wealthy.

It is true that Social Security accounts for the majority of cash income for 65 percent of seniors. However, this claim ignores the reality that today’s seniors have a median wealth level that is 26 times greater than that of households headed by adults under the age of 35. This is a drastic increase from 1984, when seniors had only 10 times the wealth of young households.

Even if Sanders’ chance at the nomination is small, his influence on American politics may be substantial. His popularity will continue to push Clinton towards progressive policies, and his continued presence on the national stage may lead more people view his democratic socialist policies as centrist. While Sanders’ policies may initially resonate with some voters, European-style democratic socialism would be a disaster for the American economy.

Jared Meyer is a fellow at the Manhattan Institute for Policy Research.