I watched with interest the Democratic presidential debate this week. Twelve candidates lined the stage at Otterbein University in Westerville, Ohio, to make their case to lead our nation. The debate covered lots of topics, including segments on foreign policy, health care, the middle class, gun control and more. But what really captured my interest was the dialogue concerning tax and expenditure policies. It’s not clear to me that any of the candidates (with the possible exceptions of entrepreneur Andrew Yang and Minnesota Sen. Amy Klobuchar) understand how taxes and government spending impact the private economy.
Consider the list of government programs and policies included in their platforms — Medicare for All, free public college, free universal childcare, eliminating most Americans’ college debt, a federal jobs guarantee, larger Social Security benefits, a doubling of the minimum wage and universal basic income. With the exception of the significantly higher minimum wage (which comes with its own set of consequences), these policy steps would require massive public expenditures funded by significant tax increases. This spending would occur at a time when the federal government already borrows more than a trillion dollars annually to finance our current spending habits.
Perhaps the best line in the debate came from Sen. Klobuchar. After listening to Massachusetts Sen. Elizabeth Warren describe her plan for Medicare for All, Klobuchar said, “I think we owe it to the American people to tell them where we’re going to send the invoice.”
Klobuchar’s remark hits on a fundamental truth of the public sector — the government cannot give to anybody anything that the government does not first take from someone else. The good senator from Minnesota is simply asking for clarification. Who is going to pay for this?
Every candidate when pressed seemed to have the same answer for who would pay … the wealthy. There’s just one big problem. A wealth tax creates unintended consequences. Capital flees the country and investors stay away. Yang pointed out that a wealth tax has been tried in Germany, France, Denmark and Sweden and in every case was repealed because of massive implementation problems and a failure to generate the projected revenue.
The worst free market offender on stage was Sen. Bernie Sanders. When asked if he was promising a federally paid job to the tens of millions of Americans who would lose their jobs because of automation he responded, “Damn right we will.” Did it ever occur to Sanders that many Americans may not want to work for the federal government?
At times, the candidates vilified multinational corporations. After saying that she doesn’t “have a beef with billionaires,” Sen. Warren promoted what she calls, “accountable capitalism.” It’s a catchy name and captures a genuine, well-placed concern that capitalism creates winners and losers. The key is to intervene in a way that does not put at risk the benefits of market economies.
In the end, I can summarize my reaction to the debate by referring to the pin on Andrew Yang’s lapel. Instead of the traditional American flag, his pin read in big white letters M-A-T-H. It stands for Make America Think Harder.
I think these candidates need to think harder about the tax and spending policies they advocate. Markets are the best way to organize economic activity, but sometimes government can improve market outcomes. The challenge is to figure out when and how government should intervene.
To paraphrase English historian C. Northcote Parkinson, “That the citizen should contribute toward common defense, toward the maintenance of justice and order is not seriously open to dispute. For the privileges of citizenship, the individual must pay. The proper amount of the revenue and just assessment of the tax are problems, essentially, of proportion. As between the point where the citizen gives nothing and the point where the state takes all there is, somewhere, the golden mean.”
The Democratic candidates have to work harder to find this golden mean.