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US under the next Democratic President (Part 1)

After multiple gruelling caucuses and primaries, the race to nomination has come down to Joe Biden and Bernie Sanders. With Biden ahead in the race after Super Tuesday, the Sanders campaign is working all the more harder, marching with full steam ahead for the upcoming caucuses. With still 2 months to go for the final announcement of the Democrat nominee, this march up to the Capitol Hill is keeping the world at the edge of their seats. 

The world has a fair idea of the future of the US if President Trump is re-elected, however, there is more mystery to what would happen if a democrat were to reside  in the White House. The economic state of America in the next 5 years will certainly depend on the leader of the land of the free. With significantly different goal plans and ideologies, Sanders and Biden have very different Americas in mind. This two part series will explore the economic repercussions of Bernie Sanders and Joe Biden being elected as president in part 1 and part 2 respectively.

“I’m running for president so that, when we are in the White House, the movement we build together can achieve economic, racial, social and environmental justice for all.”

 – Bernie Sanders 

With the aim of transforming the state of the American Economy, Bernie Sanders has proposed many revolutionary policies. His key focus is on issues like income inequality, healthcare for all and supporting the middle class. 

Heavier taxes on the Rich: Sanders seeks to reduce the income gap by imposing heavier taxes on the rich. In order to ‘rebuild the middle class’, Sanders believes that the top 1% of income earners must pay their fair share of taxes. To execute this, he proposes the 99.8 Percent Act that would create a highly progressive tax structure of estate taxes to raise revenue from multi-millionaire and billionaire inheritances. He also mentioned that he seeks to ‘substantially increase the top marginal tax rate on the income above $10 million’. 

These measures, in theory, will help reduce the growing income inequality in America. If the income taxed is redistributed well and efficiently then the poorer sections of the society will be uplifted to a great extent. A key benefit of this reform could be a lower fiscal deficit. The government might be able to raise much more revenue in this progressive tax structure as even a small percentage increase in tax on the wealthy can raise a lot of revenue, consequently reducing the pressure of the government borrowings. To some extent, this policy might discourage the entrepreneurial spirit and will not be received well in the American Capitalist set up. If executed, this policy will bring America closer to a mixed economy rather than a relatively capitalist one. 

Income Inequality Tax Plan: The 99.8 Percent Act is not the only policy solution Bernie Sanders has proposed to tackle inequality. He proposes the ‘income inequality tax plan’ to directly target the growing wage differences between employees and top-level management. This plan makes adjustments to the corporate tax structure such that companies (both public and private) with large gaps between the incomes of the CEO and median workers will pay progressively higher corporate tax (5 percentage points more for companies with the ratio higher than 50/1). The purpose of this act is not just to boost revenue but also to encourage firms to pay their employees better. 

The economic repercussions of this plan will be measured not only in terms of its effect on income inequality but also on GDP, savings, education, spending patterns etc. A redistribution of this scale (if the plan is successful) will bring a lot of money back into circulation. Money is taken out of circulation when it is saved by the rich and not invested. The middle class tends to spend more (in proportion) than the rich, therefore, this redistribution will boost middle class incomes and probably increase overall spending in the economy. The decision of increasing tax rates might seem deflationary in nature, but the resultant higher wages for employees will boost GDP. 

With an optimistic outlook, Bernie aims at reforming and revolutionising the way the corporates function. He seeks to bring a change in the corporate’s priorities, to move them away from the profit motive to also doing what is right for their employees. If he is successful in doing so, American corporations will become a better place to work in at the end of his term. Better working culture and environment, coupled with higher wages, can boost productivity of workers and potentially attract more people to join the labour force. 
Medicare for All: In a quest to make healthcare affordable and accessible for each and every American, Bernie Sanders is lobbying for ‘Medicare for all’. This national health insurance will ‘provide everyone in America with comprehensive health care coverage, free at the ‘point of service’. A major benefit of this scheme will be the expansion of national health insurance to include dental, hearing, mental health, substance abuse, reproductive and maternity care, prescription drugs and other health care costs. 

Sanders is adamant on reducing the prices of prescription drugs. To do so, he wants to negotiate with the major drug companies and pass the Medicare Drug Price Negotiation Act. His aim to cut drug prices in half by pegging their prices to median prices in 5 major countries – Canada, UK, France, Germany and Japan. 

The success of this initiative will be measured on its reach and its ability to reduce household spending on healthcare. Lower drug prices will definitely contribute to lower spending on healthcare, however, it will have a severe impact on the pharmaceutical companies. Pegging lower prices might lead to falling revenues for these companies as demand for drugs tends to be price inelastic. Many companies may not agree to this price regulation and if they do might withdraw supply in the absence of government support. To get the major companies to agree, the government might have to offer powerful incentives like tax concessions. 

This initiative will boost employment in the healthcare sector. In his plan of action, Bernie says, “We should be spending money on doctors, nurses, mental health specialists, dentists, and other professionals who provide services to people and improve their lives”.  

This plan will certainly increase federal spending (the funding for Medicare for all will come from the revenue raised from higher taxes). The lower expenditure on healthcare will free up income to be spent on other goods and services, thereby most likely leading to increased consumption. Higher consumption coupled with higher federal spending will have an expansionary effect on the economy and boost GDP. 

Green New Deal: Bernie Sanders’ views on climate change distinguish him from President Donald Trump who believes climate change is a hoax. Unlike President Trump, Bernie Sanders is prepared and plans to declare climate change a National emergency. His passion for sustainability comes clear in his Green New Deal. 

Taking note of the pressing climate change issue, Bernie Sanders proposes the ‘Green New Deal’. The first step in moving towards sustainable development in the New Deal is switching from fossil fuel powered energy to a 100% renewable energy system. In this process, an estimated 20 million jobs will be created that will help solve the unemployment problem in the US. 

Being one of the largest economies, this switch by the US to renewable energy will set the trend for more countries to follow. This move will positively impact the environment as developed nations are the largest contributors to global warming.The direct 16.3 trillion dollar public investment will be the engine of growth for the economy, while posing risks for inflation at the same time. 

Such a move will be historic in its ways of transforming the structure of the US economy. The energy sector will be transformed for good as oil and natural gas companies will soon begin to decline or diversify more into renewable energy. The trade pattern will also change – oil exports will increase and oil imports will decrease due to falling demand for oil in the US. 

Bernie Sanders’ campaign proposes many economic reforms. While there is massive scope for success, the success of the plans is heavily dependent on efficient use of funds and strict legislation. His plans for heavier taxes on the rich, the green new deal, medicare for all and income inequality tax plan are just parts of his grand plan for the USA. 

In terms of reform, Bernie plans to bring a more egalitarian society. His economic policies are targeted towards eliminating gaps in income while his Green New Deal makes sure that frontier communities and marginalised groups are brought into the mainstream and looked after. Whether GDP falls or rises, inflation spikes or slows is something that time will tell, but if Bernie Sanders has his way, the US economy will certainly be on a move to be refashioned in the long run. 
Advaita Singh is a first year student of Ashoka University pursuing her major in Economics.

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