Top 2020 Dems would raise $1 trillion less through tax plans than campaigns claim, new study finds

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Mike Blake/Reuters
  • Tax plans from leading Democratic presidential candidates would not generate as much revenue as their campaigns have claimed, a new study said Thursday.
  • The campaign revenue estimates were higher by as much as $1 trillion.
  • The Penn Wharton Budget Model has not yet evaluated all of the tax plans in the crowded Democratic field.
  • Visit Business Insider’s homepage for more stories.

Tax plans from leading Democratic presidential candidates would not generate as much revenue as their campaigns have claimed, according to new analysis from an outside budget research group.

In a series of studies released Thursday, researchers at the Penn Wharton Budget Model said signature tax proposals championed by Senator Bernie Sanders and former Vice President Joe Biden could fall short of campaign revenue estimates by as much as $1 trillion.

Neither campaign responded to emails requesting comment. The University of Pennsylvania research group has not yet evaluated all of the tax plans in the crowded Democratic field. In December, it drew similar conclusions for Senator Elizabeth Warren’s tax proposal.

The Sanders plan includes aggressive reforms aimed at the wealthiest Americans, such as through wealth taxes that start at 1% for income over $32 million. That tax percentage increases in brackets to as high as 8% for wealth over $10 billion.

Wharton estimated that those tax increases, which Sanders has said could be put toward universal health care and expanded government programs, would bring in between $2.8 trillion and $3.3 trillion depending on whether outside effects are included.

That’s a stark contrast from campaign claims that the plan would raise $4.3 trillion in revenue, partly because of assumptions each side made for tax compliance. Some argue that the wealthy would be likely to find ways to circumvent such a large increase in tax rates, a factor Wharton relied on more heavily than the Sanders campaign.

“There is a lot of dispute within the economics profession about this, and I know that the Sanders campaign is relying on the most optimistic assumptions about how much wealth there is to tax,” said Alan J. Auerbach, an economist at the University of California, Berkeley.

While more modest than his more liberal rivals, Biden would also target some of the highest earners and corporations. In the same study, Wharton said that more than half of revenue would come from the top 0.1% of households under his tax proposal.

The Biden campaign said that would raise $3.2 trillion over the next decade, funding more moderate domestic spending proposals. That is also far above Wharton estimates of between $2.3 trillion and $2.6 trillion, a gap that could stem from the overall method the campaign used to make its estimates.

The campaign estimated each provision in isolation relative to current law rather than as a combined and internally consistent plan, according to Kent Smetters, the faculty director of the Wharton project and a former Treasury official under President George W. Bush.

“For example, their provision to ‘impose a minimum tax on corporate book income’ raises less money relative to their proposed new corporate rate of 28% than relative to the current law rate of 21%,” Smetters said in an interview.