Sen. Elizabeth Warren has proposed a long list of detailed, ambitious, and very expensive campaign ideas. And she has described how she’d pay for them: She’d raise taxes by trillions of dollars on wealthy individuals and corporations. Give the Massachusetts senator and Democratic presidential hopeful credit for acknowledging that her initiatives must be paid for, and for being relatively transparent about how.
But Warren suffers from a common problem among politicians: Her ambitions are likely to exceed the revenues available for pay for them. That is hardly new for a politician, but voters should keep it in mind nonetheless.
On the spending side of the ledger, Warren has promised a $700 billion universal child care program, a $600 billion free college program, a $640 billion program to cancel existing college debt for many current or former students, and a $500 billion-plus low-income housing program. You can see descriptions of her plans here.
A wealth tax
On the revenue side, she has proposed a tax on very wealthy households that she says would raise $2.75 trillion, a corporate profits tax that would raise $1 trillion, and an increase in the estate tax that would raise about $500 billion. It is difficult to estimate the revenue from her wealth tax, but many experts feel it will raise much less than she predicts. All Warren’s spending and revenue estimates are over 10 years.
She says her estate tax hike will pay for her housing plan. If true, that leaves, at best, about $3.75 trillion in new revenue to pay for roughly $2 trillion of new domestic initiatives she has described so far.
Sounds good, except it leaves out what is likely to be the major policy issue of 2020—health care costs and access. Here, unlike with so many other subjects, Warren is uncharacteristically ambiguous. She has co-sponsored Bernie Sanders’s maximum version of Medicare for All, where government replaces all private health and long-term care insurance. His 2016 plan would have cost $32 trillion without offsetting revenues, according to the Urban Institute’s Health Policy Center.
Scaling back Medicare for All
But she’s also proposed much more modest health care ideas. For instance, she has introduced a bill to shore up the Affordable Care Act. It would, among other things, increase government subsidies for private insurance purchased on health exchanges and cap monthly out-of-pocket drug costs at $250. In 2015, my Urban Institute colleagues figured that a plan including some—but not all-- of the elements in Warren’s new plan would cost roughly $500 billion over 10 years.
Even if her taxes raise the revenue she expects, she’d only have enough money to finance a health reform plan that costs a fraction of Sanders’s full-blown version. That means she’ll have to scale back her promise to provide Medicare for All, a move not likely to generate much enthusiasm with the progressive Democratic base.
Warren implies she can pay for her huge new initiatives solely by taxing the rich. She can’t. She’s already proposed a wealth tax, an increase in the estate tax, and a new tax on corporations. It is hard to see how she is going to get any more blood out of the one percent stone. Sure, she could raise income tax rates on high-income households. But the idea of Congress passing both a wealth tax and an income tax increase on high-earners seems more than implausible.
A warning for voters
Thus, either she’ll have to scale back her policy ambitions, raise taxes on middle-income households, do what politicians have been doing for decades and borrow the money, or rely on some combination of all three. The challenge would be especially difficult given that her promises would come on top of the existing $17 trillion public debt.
Like Hillary Clinton in 2016, Warren has been careful to tie new revenues to new spending. In many ways, she has been more forthcoming than most of her Democratic rivals. And she’s been vastly more credible than Donald Trump was in 2015-2016 when he promised tax cuts that reduced revenue by as much as $6 trillion even as he vowed to protect the biggest federal spending programs and eliminate the entire existing federal debt.
By the standards of contemporary politicians, Warren is almost a paragon of fiscal prudence. She is at least making some effort to match new spending and revenues. But that is exactly why her promises should serve as a warning to voters who are shopping for presidential candidates: When those hopefuls promise the world, do the math.
