Study: Bernie Sanders’ Wealth Tax Would Shrink U.S. Economy and Lower Wages

Democratic presidential candidate Senator Bernie Sanders gestures after speaking during the 2019 J Street National Conference at the Walter E. Washington Convention Center in Washington, DC on October 28, 2019. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
Mandel Ngan/AFP/Getty Images

Senator Bernie Sanders plan to tax the wealth of some of America’s richest families would add new revenue for the government at the cost of shrinking the economy, lowering wages, and reduce capital formation in the United States, according to a new analysis from University of Pennsylvania’s Wharton School Budget Model.

Sanders, a leading candidate for the Democratic nomination for president, has said he would impose a graduated wealth tax starting at 1 percent of a household net worth above $32 million. It would climb to 8 percent on households with a net worth above $10 billion.

While the Sanders campaign has said this tax would raise $4.35 trillion over 10 years, the Wharton School Budget Model estimates it would raise $3.3 trillion before including the drag on the economy from the tax. Included the economic effects, the model estimates it would raise just $2.8 trillion.

Additional revenue could reduce the federal deficit–although it could also lead the government to simply spend more. Under the Wharton model, reducing the federal deficit leads to increases in investment, rising capital accumulation, and a higher GDP. But the beneficial effects would be outweighed by the disincentive to save created by the tax.

“This disincentive to save outweighs the effects of deficit reduction, and the net effect is a 2.9 percent decline in the total capital stock in 2050. Workers become less productive as a result of the decline in capital, leading to a 1 percent decline in wages by 2050. National output, as measured by the nation’s Gross Domestic Product (GDP), falls by 1.1 percent in 2050,” John Ricco and Victoria Osorio wrote in their report on the models findings.

Hours worked would increase as the economy would be more dependent on labor due to lower levels of investment in productivity-boosting equipment.

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