My Thoughts on the Bernie Sanders Tax and Economic Proposal

If you have been a member of the community for a long time, or have gone back and read my archived writings about economic issues in politics, you know that I am a non-partisan, case-by-case voter; a boring-as-watching-paint-dry-let’s-tear-apart-the-details policy wonk. I look at specific proposals and actions under specific circumstances and conditions then try to vote or influence the electorate in my corner of the world in a way that I believe will result in the best societal-wide outcomes, all relevant known factors considered.

This can be frustrating for some of my friends, family members, and readers because it means my loyalty is to my principles, not to party or people. I can’t be counted on to be a member of a tribe, which sometimes makes me suspect. Instead, if someone has 1.) the right values, and 2.) the right policies to enact those values, they get my vote regardless of age, gender, race, religion, sexual orientation, or political affiliation. This political philosophy has two outcomes:

If a politician has a good idea, even if I disagree with everything else they believe or say, I think it’s important to recognize and support that idea and that, when evaluating that politician, I will attempt to look at the whole picture as impartially as I can without excusing or forgiving the evil they do. If a politician supports something I think is a good policy and want to see enacted, but he or she does so in a way that I think leads to substantially greater net negatives, I will work against something I otherwise want to see happen. (An illustration from history would be the well-meaning but economically disastrous rent control policies enacted in the mid-to-late 20th century meant to make housing affordable. Instead of doing what it was intended to do, it incentivized behavior that, when combined with other variables and factors, ultimately led to cities like New York and San Francisco becoming completely unaffordable for the median resident household at the same time it decreased both the “quantity and quality”, to borrow a phrase, of the existing housing stock for all but the super-rich. In other words, the bleeding hearts who put it in place did far more harm than good to the point that no serious economist, liberal or conservative, supports them any longer. They hurt the very class of people they were intended to help. Those who opposed them were accused of being anti-poor but actually were defending the poor despite appearances.)

Again, none of this is new if you’ve been around me yet it always seems to come as a surprise to some. It’s simply not a popular way to think. I had people write me privately who were deeply upset about the piece I wrote on the late Supreme Court Justice Antonin Scalia. They felt as if, even though intellectually they could see where I was coming from, I was somehow breaking some secret, unspoken rule by acknowledging the good he did rather than solely focusing on the evil and damage he caused a lot of innocent American families.

I’ve grown accustomed to it. People tend to adapt when they understand this is my framework. They understand that I’m not, to give another example, praising the Presidency of George W. Bush when I refuse to blame him for the housing crash because he was one of the only people in Washington, D.C. trying to stop it years before anyone else cared. It resulted from banking deregulations and housing incentives put in place by Democratic leaders who fought him tooth-and-nail when he tried to shrink Fannie Mae and Freddie Mac before the collapse. If Bush had his way, it never would have happened. Those are the facts. It doesn’t change any of the bad things he did. Both exist. That is reality. No matter how I feel about the man, intellectual honesty demands I recognize that. It is unfair to criticize him for something he didn’t cause.

The same goes with my more conservative friends. Contrary to the popular narrative that he is some sort of left-wing, out-of-touch socialist with disastrous economic policies, President Barack Obama has actually done some extraordinarily wonderful things with the tax code. He pushed hard for a 50% payroll tax cut, the most regressive tax on the poor, middle class, and self-employed, which he wanted to pay for by returning the top marginal rate to the same 39.6% it was during the Clinton boom years. He was stopped by the Republicans in Congress who demonstrated they cared more about the super-rich than the vast majority of American families. He had to settle for a temporary, one-year 2% tax cut. Later, when compromising with the Republican Congress on the expiration of some earlier tax compromises, he was able to raise the capital gains tax rate to 20% on the highest earning families to help reduce the deficit necessitated by the earlier economic catastrophe but as part of that deal, he eliminated capital gains and dividend taxes on the poor, middle class, and parts of the upper middle class entirely. Specifically, if you make $37,650 in taxable income as an individual or, if you are married, you and your spouse make $75,300 in taxable income, you no longer have to pay any taxes on your capital gains or dividends. Almost nobody talks about it but it’s one of the biggest investment giveaways to the typical American in history. President Obama pushed through an $8,500 tax credit for first-time home buyers to try and bail out individual families during the housing collapse and worked to make loan forgiveness due to underwater mortgage write-offs non-taxable so those who were facing bankruptcy or wipeout didn’t have to worry about being sent to jail for fear of an IRS bill they couldn’t cover. No matter what others may tell you and what his ardent admirers may have believed in election season, when paper is put to pen and laws are passed, President Obama is a fair, prudent, and moderate steward of the tax code and economy, prioritizing what is best for those who are struggling without resorting to confiscatory tax proposals that penalize hard work. He’s done a very, very good job on the economic side, often in ways the typical voter doesn’t see. The irony is, most of the people criticizing him are far better off than they would have been under a McCain or Romney administration. They have no idea that the things for which they do blame him are a by-product of the on-going transition to a knowledge economy and would have happened regardless of who was elected.

With the upcoming Presidential election in November quickly approaching, there have been a recent slew of economic proposals and platforms released by the Democratic and Republican candidates. I believe in giving each a fair hearing so I have been spending time going through them line-by-line. Recently, my attention has been on that of Vermont Senator Bernie Sanders, who is running for the Democratic nomination. Mathematically, even ignoring superdelegates, it is a near statistical impossibility for him to get the Democratic nomination at this point unless Hillary Clinton is indicted. This is due to the fact that the Democrats award delegates proportionately and her margins of victory have been truly breathtaking in places. Saturday, by way of example, Sanders won two of the three states but actually came out of the night further behind Clinton in the delegate count because she so thoroughly trounced him in Louisiana.

Before I Talk About the Bernie Sanders Tax Plan, A Quick Refresher on What I Want In a Country: Equality of Opportunity, an Emphasis on the Individual Citizen and Family, and a Culture of Responsibility

I’ve talked a lot in the past about my belief that certain government expenditures are more accurately thought about as investments. The outlays lead to bigger dividends than immediately show up in the revenue line.

Historically, you have all kinds of examples. The G.I. Bill for returning World War II veterans who wanted to access higher education and retrain for the civilian workforce is a good example. So is the practice of using property taxes to pay for free K-12 education. We give up money out of our pockets each year and, in exchange, any child, regardless of economic circumstances, has the opportunity to learn to read, write, do math, and self-educate or pursue college or university. We, as members of the community, get a capable workforce and lower crime. We don’t have to worry about bands of teenagers roving the streets like barbarians, raping and pillaging for entertainment. The schools aren’t traditional accounting profit centers – they represent a net outflow each year – but they are to the civilization in that they pay themselves back exponentially, even in monetary terms, once you factor in second and third order effects. (Think of all of the tax revenue generated by a young man who spends his life as a biologist rather than sitting in a prison.) True, getting the balance right for school funding can be tricky as Americans tend to have a bizarre pathology of thinking throwing money at a problem fixes it – if you doubt that, look at Kansas City where a judge ordered the biggest financial settlement in American history to the failed school district which, despite practically unlimited funds and new Olympic-style swimming pools, still didn’t improve performance in any meaningful way – but there can be no doubt, upon examination of the evidence, that free public schooling for every child has been one of the most intelligent capital allocations our capitalistic system has ever made.

As a result, you already know that I believe:

Merit, not family status, should be the sole deciding factor when it comes to college affordability. I think that a strict, standards-based national test should be available to any American citizen, regardless of economic or family history, age, gender, or any other characteristics. Anyone who can score above a certain threshold should be entitled to low-cost or free-at-the-point-of-use higher education. We all benefit if a brilliant mind is learning how to build better space craft or how to become a dentist rather than supporting themselves in a dead-end job.

Health care should be low-cost or free-at-the-point-of-use using a system that rationalizes the economics by substituting, to some degree, wait times for money based on priority (scarce resources must be allocated one way or another and it’s the fairest). It’s immoral, and ultimately bad for all of us in civilization, when a family who has done everything right goes bankrupt because one of the children are born with a heart defect.

The tax code should be progressive, rather than regressive. The poor and middle class tend to spend money when they get it, putting it right back in the economy, increasing the velocity of money, and, ultimately, government tax receipts. I’ll take a tax cut in the payroll tax for a factory worker, minimum wage worker, or small business owner any day of the week over a reduction in the estate tax if forced to choose. Besides, the wealthy benefit as they own the businesses the poor and middle class patronize with their increased purchasing power.

Bankruptcy should not be shameful nor should it be denied as real capitalism requires lenders to price their products in a way, and underwrite their loans with sufficient risk protocols, to account for borrower risk. It is unacceptable for a country as wealthy as ours to let the student loan industry, in particular, turn student debt into some sort of magical class of debt that is almost impossible to discharge in court. By tying the hands of bankruptcy judges more than necessary, we all suffer. Educated young adults who should be out getting married, forming stable households, and siring the next generation of citizens brought up in the ideal conditions are, instead, having to take second and third jobs to cover the interest and principal payments. Medical doctors tend to avoid fields like general practitioner compared to historical rates because the rewards aren’t sufficient to makeup for the enormous debt required to graduate. We all lose.

The family is the major building block of civilization. The prime political unit. The first school. The greatest anti-poverty program. The ideal apprenticeship. Therefore, I believe gender equality in parental rights is something that has to happen in coming years; fathers and mothers should be entitled to four to six months of paid parental leave after having a child. Workers should be given at least four weeks of paid vacation a year to spend time away from the office with their spouse and kids. We know all of the enormous benefits this generates, again, once you factor in second and third order effects. Humans are not cogs. They should not exist solely for wage slavery, no matter how high those wages may be. Everything from behavioral economics demonstrates the advantages of this sort of thing. Most people get everything they will complete in a day finished before lunch. Thereafter, they are coasting; secretly watching YouTube videos, browsing Reddit comments, or dragging their feet on that Excel worksheet. Frankly, we should go to a four-day work week. The human brain is better at working in bursts, not in long, sustained effort. Our entire economy, outside of a handful of industries, is built upon the edifice of the industrial revolution. We’re almost completely transitioned to the so-called “knowledge economy”, as Peter Drucker would put it so our workplace culture should change to reflect it.

I believe in upcoming legislation, The Equality Act, which would crack open the Civil Rights Act of 1964 along with other anti-discrimination regulations, laws, and systems to add protections based on sexual orientation so no worker could be fired, no renter could be kicked out of his or her home, and no service could be denied at a business because of a person’s sexual orientation, relationship, or marital status.

On and on it goes. You know where I stand on other issues, too. I basically want a fair society where merit is the determining factor in a lot of cases. Inequality in and of itself doesn’t bother me – I think it’s right that someone like Steve Jobs or Walt Disney basically lived like a king compared to everybody else and inequality is the nature of the universe as you’re always going to have inequality in beauty, inequality in willpower, inequality in intellect, which means inequality in financial outcomes – but only so long as you don’t have brilliant minds in the South Side of Chicago being shot on their way to school or having to drop out because they can’t cover the bills. I want a civilization that protects consumers but makes it possible for smaller businesses to thrive so you don’t get this incentive to consolidate with a handful of corporations owning everything.

I also don’t mind a system that permits failure. I agree with President Obama when he said that Social Security was not a pension system, it was a sort of guaranteed minimum floor below which we, as a people, have decided we don’t want our fellow citizens to fall. It’s not meant to pay all of your bills or allow you to live comfortably. It is a quasi-anti-poverty safety net.

Absent the aforementioned medical emergency, if you make it to the end of a 40 or 50 year work career and have not built a large enough net worth to support yourself, in this day and age, and in this country, it is absolutely your fault. You are responsible for it.

Imagine an 18 year old wanted to end up with $500,000 in today’s purchasing power by the time he or she retired at 67. It’d be a huge accomplishment considering that, according to the most recent Federal Reserve data, the median 65 to 74 year old has a net worth of $232,100, which includes houses, cars, bank accounts, and the value of other financial assets. That means our young person is aspiring to accumulate a portfolio of productive assets entirely aside from all of his or her other holdings that, by itself, is over twice what the typical American builds after a lifetime of labor.

Furthermore, imagine inflation runs at a long-term average of 3.5% (between its historical long-term average of 3% and 4%). Next, assume that nominal pre-tax, pre-inflation equity returns with dividends reinvested collapse to the lowest 49-year rolling returns ever recorded in the United States: 7.5%. That’s worse than if you bought in at the height of the speculative boom in 1929 prior to the Great Depression. Finally, for simplicity’s sake, we’ll assume our young man or woman is doing this through a Roth IRA so no taxes will ever be paid.

Given these variables, it would take only $3,700 saved in the first year, increasing at 3.5% for inflation every year thereafter, for our young person to reach his or her goal. That’s roughly $10.14 per day. Of course, if anyone believes America’s brightest days are ahead of it, the actual amount required would be materially lower as the 7.5% nominal return would turn out to be far too dim a view of the coming decades.

Let’s explore that line of thought. What if our investor were willing leave the tax and protective confines of a Roth IRA in order to take advantage of an asset class such as conservatively-leveraged real estate? Done properly, such an investment should be able to earn nominal returns on equity of between 10% and 15% under most ordinary economic conditions (for smaller projects, especially, these are still available in parts of the Midwest despite considerable overvaluation elsewhere). He or she would then need only save anywhere from $1,731 per year + a 3.5% annual inflation adjustments ($4.74 per day at the 10% compounded return) to $332 per year + a 3.5% annual inflation adjustment ($0.91 per day at the 15% compounded return) to reach his or her $500,000-portfolio-in-today’s-purchasing-power goal. That latter return figure should make it clear why so many self-made millionaires prefer working with real estate. Most will never earn 15% in the stock market. Leverage, though … leverage can be dangerous under the wrong conditions but done wisely, at the right time, on the right terms, and at the right price, it can be a wonderful path to financial independence for certain types of individuals as it juices the growth in net worth.

The point of all of should be apparent. Absent some fairly extraordinary circumstances such as the rare medical emergency that is beyond your control, if, upon reaching adulthood, you can’t save between $0.91 and $10.14 per day in the most prosperous economy in human history at the most prosperous time in human civilization, you are either mathematically illiterate, lazy, or have a near total lack of self-control. There is something wrong with you. That $500,000 in real purchasing power can provide a combination of principal drawdowns and passive income to augment your other forms of income including, perhaps, Social Security. If you don’t have it, it is not anyone else’s job or responsibility to bail you out of your lack of planning or stupidity. In fact, to forcibly take money from a young, hardworking, responsible individual, by threat of sending him or her to jail if he or she doesn’t pay the higher taxes, and then transfer that money to you so you can have had your cake and eaten it, too, after a lifetime of being a profligate, is a disgusting moral failure. It’s evidence of hedonistic rot. Freedom means being free to fail; to live with the outcomes that you, yourself, have created.

I know people who have failed at this first hand despite having no excuse. They went through their entire careers, often making $40,000, $50,000, $60,000, $70,000+ and now have nothing to show for it. They still rent. They have no 401(k) or IRA assets. They have no meaningful savings. They are loaded down with credit card debt. They constantly make dumb financial decision after dumb financial decision and now talk about how they can’t survive; how the government needs to provide for them. I find it both revolting and pathetic. They want to rob the folks who put off their own consumption, having the best of both worlds. In fact, I find those who support this kind of behavior almost monstrous in their lack of empathy, focusing solely on tears and not substance. Fairness matters. Fairness is important. No one is entitled to a good life, only the chance at building one for themselves.

On the Balance, You Would Think My Political Alignment This Election Cycle Would Most Match Bernie Sanders

Given all of this, other than the emphasis on personal responsibility, you would think that my political alignment would most closely fall near Senator Bernie Sanders. On substance, we agree in a very real way on the type of society we want to build – a society where the media isn’t controlled by six corporations, where bribery doesn’t pass as lobbying, where we aren’t constantly going to war on the other side of the world, sending our men and women off to die. He even shares my deep, personal disgust with the for-profit prison industry, something I can’t bring myself to own because I find it wrong on some sort of fundamental, human or spiritual level that I find hard to put into words. However, given that applied economics and finance are my backyard, what I do all day, every day for the most part, the “how” of the economic policy is extremely important to me. Good intentions are not sufficient. Results are what matter. Outcomes are what count. I want the fairest system with the most people possible enjoying the highest standard of living consistent with my aforementioned personal responsibility emphasis. To go back to an earlier point, no matter how much I may want affordable housing, I won’t vote for rent control since it makes the problem worse even though it may deceive people in the short-term.

Despite wanting to support him, after reading Senator Sanders’ economic and tax plan, I have come to the same conclusion that most mainstream economists have. Only, I’m going to be more blunt about it. You know I’m not a fan of cursing and I try to be as even-minded as I can so please absorb what I am about to say to you in all seriousness because that is how it is intended. This is not a joke. I do not say this lightly. I am not kidding.

My verdict: When it comes to economic and tax policy, Bernie Sanders is bat shit crazy.

I wince even saying it so vulgarly but there’s no other way to quite emphasize how insane this man’s proposals are. I don’t say that to provide a sense of hyperbole. I’m not trying to generate an emotional response. I’m telling you that I think the man’s economic and tax policies are deranged. In a real sense, he is a sort of anti-Obama. Whereas President Obama’s proposals are ultimately workable and sound policy, even if I feel like they go too far at times on the revenue raising side before he’s forced to compromise with Congress, what Senator Sanders wants to do is not only unworkable, it’s immoral. It’s disgusting. It is nothing but the recycled, failed policies of the 1970s; garbage that will ultimately harm the poor and middle class. It is so unbelievably, catastrophically bad that I cannot imagine anyone but the economic illiterate or someone so deeply vested in political ideology that they’ve lost all semblance of objectivity supporting this.

It is abundantly clear why none of the Democrats would work with him in the time he has been in the Senate to get anything meaningful done.

it is abundantly clear why none of the Republicans would work with him in the time he has been in the Senate to get anything meaningful done.

It is abundantly clear why he has a shockingly and inappropriately small net worth and tens of thousands of dollars in personal credit card debt despite having a very lucrative six-figure income for many, many years now.

He cannot be trusted with money. He cannot be trusted with the nation’s economy. He cannot be allowed to get anywhere near the economic and regulatory framework of the greatest wealth-producing system in global history. No matter how much I agree with him on much of everything else, I will not support this kind of lunacy.

To put it bluntly, Bernie Sanders’ tax plan does not just “soak the rich”. He all but declares war on the both the middle and upper middle classes as well as the self-employed. By way of illustration, if you are a reasonably successful dentist living in a suburb who owns your own practice, you are going to get mauled to such a degree that it will result in a materially lower standard of living for you, your spouse, your children, and your grandchildren. It will result in a gargantuan increase in the size and power of the government – the very government everyone is complaining is already too corrupt! This is true even accounting for the theoretically lower cost of healthcare.

Specifics matter so let’s get into some of the details.

The Specifics of Bernie Sanders’ Proposed Tax Plan

First, let’s talk about the regressive taxes. I hate regressive taxes. I think the successful and rich should pay a higher percentage of their income because we disproportionately benefit from the services of this country. The military protects more of our assets. The fire departments are there to protect more of our buildings. We transport more of our goods and services over public roads. It also helps prevent aristocracies, which have fallen to the lowest level in global history as the percentage of self-made millionaires and billionaires are now at an all-time high compared to our ancestors for whom wealth came in the form of inherited land, property, and slaves.

Yet, an estimated 45% of the tax revenue Sanders wants to raise comes from these offensive and onerous levies on working families, not the rich alone. Specifically, in addition to the already-existing 15.3% payroll tax that self-employed people have to pay now (this is paid before a penny in Federal, state, or local income tax, sales tax, property tax, or any other taxes are paid), Bernie Sanders wants to:

Remove the cap so the payroll tax applies to all levels of income, transforming Social Security from a safety net to a transfer mechanism where some people pay in way more than they ever receive in benefits;

Add an additional 6.2% payroll tax on the employer portion (self-employed people pay this themselves, businesses have to cover it otherwise) on the same tax base as the Medicare hospital insurance tax

Add an additional 0.2% payroll tax on the employer portion (self-employed people pay this themselves, businesses have to cover it otherwise) on the same tax base as the Social Security tax

Add an additional 0.2% payroll tax on the employee portion (self-employed people pay this themselves, workers have it taken out of their paychecks otherwise) on the same tax base as the Social Security tax

This means that if you are self-employed, before we’ve even gotten to the other tax changes he wants to make, you are now looking at sending more than 1/5th of your income to the Federal government and you still wouldn’t have paid a penny of Federal, state, or local income taxes, sales taxes, or property taxes.

We’re just getting started.

After you’ve paid all of this to the government, now it’s time to get to Federal income taxes. Sanders wants to:

Keep the first four Federal tax brackets – 10%, 15%, 25%, and 28% – but add a special 2.2% premium tax on top of them that applies to all tax payers, rich and poor, affluent and destitute alike. This means, for all intents and purposes, the first four new Federal tax brackets would be 12.2%, 17.2%, 27.2%, and 30.2%.

tax payers, rich and poor, affluent and destitute alike. This means, for all intents and purposes, the first four new Federal tax brackets would be 12.2%, 17.2%, 27.2%, and 30.2%. New tax brackets would be put in thereafter – 37%, 43%, 48%, and 52% – but you have to remember to add that 2.2% premium tax on top of those, too, so the marginal rates actually become 39.2% (assessed on income between $250,000 and $500,000), 45.2% (assessed on income between $500,000 and $2,000,000), 50.2% (assessed on income between $2,000,000 and $10,000,000), and 54.2% (assessed on income above $10,000,000).

If you are fortunate enough to amass a net worth that can be measured in the billions, you will pay a special, additional tax of 10% on top of all of this.

Next come your investments. He wants to tax those, too.

Investment income subject to the existing 3.8% Affordable Care Act tax will now be subject to an extra 6.2% surcharge tax, bringing the total to 10.0%.

Married couples earning more than $250,000 will pay those new tax rates on cash dividends and capital gains.

The stepped up basis loophole would be removed, meaning inherited stock would trigger capital gains taxes even if you didn’t want to sell it.

“Like-Kind” exchanges under Section 1031 would trigger taxes, which could have fairly severe consequences for the real estate and art markets.

Individuals making more than $50,000, and married couples making more than $75,000, would have to pay a special tax anytime they bought or sold an investment. This is known as a “Robin Hood Tax” meant to take money from investors and give to the poor through social programs. You’ll pay 0.5% on your stock every time you buy or sell. You’ll pay 0.1% on your bonds every time you buy or sell. You’ll pay 0.005% on your derivatives every time you buy or sell. That means on a round-trip investment, you’re giving up an extra 1.00% on stocks, 0.20% on bonds, and 0.01% on derivatives. (This proposal is particularly crazy because it ignores the experience of Sweden between 1984 and 1991. They introduced something like this and by 1990, more than half of all Swedish stock trades had moved to London as investors reacted to the new incentives. Markets became less efficient as people were less willing to buy or sell. The modified human behavior resulted in the government gaining practically no new net tax revenue. It was a spectacular failure.)

He also doesn’t want you to be able to give money to your children beyond the occasional, small Christmas or birthday gift. Not kidding. That’s the general gist of the language his campaign is using in the tax proposal. Specifically, Sanders wants to:

Stop individuals from being able to give $14,000 away tax free per year to a recipient. Trust funds will most definitely be hurt but it may also mean no more meaningful UTMAs or gifting shares of stock to kids without paying big gift tax bills. It may mean no paying for a child’s wedding, helping them buy a car, giving them a bit of a head start on a downpayment for a house, taking them clothes shopping for their first adult job, buying them a musical instrument, or any number of other things common in middle and upper middle class families. To do so, you’ll have to give the government their cut, too, since it’s considered unfair you can provide for your kids and others haven’t or won’t.

Eliminate the recognition of liquidity discounts on family limited partnerships, operating businesses, real estate, and other holdings. He’s literally going to pretend like the inability to sell an asset doesn’t result in a reduction in intrinsic value, denying long-established taxation, financial, and economic precedent.

Supercharge the generation skipping tax for trust funds setup to last more than 50 years

Curtail the use of grantor retained annuity trusts

He wants to make it much harder for assets to pass to children, grandchildren, nieces, nephews, and others in death. Specifically, Bernie Sanders wants to:

Lower the individual estate tax exemption to $3,500,000 and then purposely not adjust it for inflation so that with each passing year, it is effectively getting smaller and smaller, hitting more and more estates.

Apply new, confiscatory rates so that if the estate tax is triggered, the estate tax rate will change so that it is 45% on amounts between $3,500,000 and $10,000,000, 50% on amounts between $10,000,000 and $50,000,000, and 55% on amounts above $50,000,000.

The problem, of course, is this could devastate smaller, successful family-controlled operating businesses, especially in conjunction with the misguided removal of the earlier liquidity discounts. It would lead to an increase in the power and revenue levels of life insurance companies as you’d have more and more families writing life insurance policies to cover estate tax liquidity needs or, more likely, have family members sell out to larger businesses, increasing the rate of corporate consolidation that has resulted in fewer and fewer mega-businesses controlling more and more market share.

Farmers would suffer the same fate except that Sanders has proposed a special carve out for them. Farmers would be allowed to pretend that up to $3,000,000 of their farmland didn’t count toward estate tax purposes. Which, anyone with any economics background is going to tell you will lead to farmland becoming a de facto tax shelter, driving up the cost of farm land and making it harder for honest-to-God farmers to make a living. On the state level, stupidly designed policies like this result in people like George W. Bush, Michael Dell, the Forbes family, and others buying up prime farmland they likely otherwise wouldn’t own. It’s an inefficient allocation of resources.

But wait! That’s not all! Remember our past discussions about foreign taxation of corporate earnings? How about that time I explained how corporate inversions work? Sanders wants to:

Start charging U.S. corporate taxes immediately, even on non-repatriated earnings, for foreign subsidiaries of American-owned operating assets.

Restrict inversion by increasing the requirements (which will only result in a greater percentage of the firm being sold to foreigners, effectively lowering U.S. influence)

Treat foreign companies managed and controlled in the U.S. as U.S. Corporations

Eliminate tax deductions in certain businesses (left purposely vague)

Institute a substantial carbon tax

Limit or deny foreign tax credits on integrated energy companies in particular

Let’s focus on the first two. These are extreme. No other major country on Earth would dare to do the first. It would put our companies at enormous disadvantages to those of nearly every other country. Our allies in Europe and Asia would be salivating because it would be easy to steal some of our crown jewels. Specifically, think of a business like Coca-Cola or Colgate-Palmolive. Huge percentages of assets, sales, and profits come from overseas; foreign factories staffed by foreign workers engaging in commerce in foreign currency with no necessary or meaningful connection back to the parent U.S. operation other than legal incorporation. By subjecting these assets to tax rates that put those in Switzerland, the United Kingdom, etc. to shame, it would not take long for an exodus to occur. Inversions would not be necessary. Let me explain.

Coca-Cola could instantly reorganize itself into two businesses – The Coca-Cola Company (domestic) and Coca-Cola International (foreign). It’s been done before, specifically with Dr. Pepper, the rights to which now belong to two companies (Dr. Pepper Snapple Group domestically and The Coca-Cola Company internationally). The foreign business would take a majority of the company’s assets – all of the factories, employees, cash, debt, etc. of the firm’s non-U.S. activities – and wrap it up as a new entity. It would list its shares on the London stock exchange like Unilever or, perhaps, the Zurich stock exchange like Nestle. Shareholders of the existing Coke would receive a tax-free spin-off of the new, foreign company with the remaining domestic company being a shell of its former self, doing business solely in the United States.

All of that influence lost. No additional tax revenue gained. Some of our best listings now in the U.K. or Switzerland. This is not difficult to accomplish and any management that didn’t entertain the idea would be breaking its fiduciary duty to its shareholders. This is not a small thing. Right now, roughly 1/3rd of all revenue at the S&P 500 components comes from outside of the United States.

The Tax Increases Go On and On and On and On …

By the time all is said and done, even accounting for the supposed free college and health care that Sanders is promising his voters, the discretionary purchasing power of nearly every family in this country, rich and poor alike, would be lowered, in some cases by double-digit percentages. As I mentioned earlier, the self-employed will be among the hardest hit. I’d go so far as to say anyone who owns a business and votes for Bernie Sanders is out of his or her mind. This whole thing is not only regressive as hell, it incentivizes all the wrong values. It encourages selling out to larger corporations capable of dealing with the added burdens. It makes it much harder to start a small business and internally fund it from growth due to lower after-tax cash flows, meaning only the affluent will even have that opportunity. It all but guarantees many of our best corporate assets will end up in the hands of our allies.

It’s astonishing that this ever left committee. To repeat myself, these are the failed, out-of-touch economic policies of a by-gone era.

And what’s worse, I’m seeing these economically illiterate but well-meaning people defend this asininity because they are so clueless on tax policy, code, and consequences they don’t understand, for example, that the United States marginal rates of 90% in the 1950s were not really 90%. (Seriously, I’ve seen people argue this! “Rates used to be a lot higher”). In the off-chance any of you suffer from that illusion: It’s a myth. Marginal rates are largely meaningless, it’s effective rates that count. (One of the reasons Sanders’ policies are so terrifying is they push us beyond an edge which even the most liberal economists are not willing to test.) To be frank about it, the effective tax rates during the 1950s weren’t terribly oppressive because the loopholes were staggeringly large back then. Furthermore, the country was willing to pay the elevated-but-still reasonable effective rates because we had gone all-in to defeat Adolf Hitler from conquering the world. Europe and much of Asia had been bombed into total oblivion so there was no major manufacturing base that could compare with ours. We were the only game in town. That isn’t true anymore.

For example, between 1942 and 1954, you could exclude 50% of your capital gains on stock and bond income provided you held the position for only six months. You could pay people with three-martini lunches, corporate cars, and healthcare benefits, not treating it as compensation. You could incorporate your professional practice as a corporation, which had much lower rates. You could deduct personal interest expense on luxury purchases.

When the 1960s rolled around, a Democrat named John F. Kennedy was elected President. He got into the Oval Office, basically looked around and said, “This is the dumbest thing in the world. Just get rid of the exemptions and lower the marginal rates to represent roughly what people are really paying.” (He actually went further and cut real tax rates on the poor and middle class, leading to the government collecting more money than it otherwise would have as people spent the savings, speeding it through the economy and triggering more taxes every time it changed hands.)

So he did. The rates came down, down, down, but the exemptions were closed and guess what? Tax receipts as a percentage of GDP stayed almost exactly the same because those high marginal rates were a mirage and increased velocity of money made up the difference. I’m over-simplifying a bit here but that’s the gist of it.

You can verify this by Hauser’s Law. In essence, no matter what marginal rates Congress passes, effectively, tax receipts as a percentage of GDP never deviate much from around 19.5% of GDP or else the American people revolt / change their behavior to lower their tax bill by taking advantage of the system. Whether the marginal rates are 10%, 90%, or somewhere in between, it doesn’t really matter much as U.S. citizens, collectively, are willing to give up a little less than 1/5th of their output to the Federal government. Beyond that and we overthrow our elected representatives.

If someone actually tried to extract effective rates of 70%, 80%, etc. on any meaningful percentage of the population, it would be politically catastrophic. I’d support an all out insurrection as it is profoundly immoral. You get into rates like that and freedom is an illusion. That is slavery.

The Good News: This Likely Won’t Matter as Sanders’ Chances of Enacting Any of These Changes Are Practically Non-Existent

There is little reason to worry, though. At least, present known factors considered. Senator Sanders, as it stands now, has a lower than 7-out-of-100 probability of winning the Democratic nomination thanks to Hillary Clinton steamrolling him in the ordinary delegate account as her margins of victory are enormous compared to his (the Democrats use a proportional allocation system). As I mentioned earlier, even when Bernie won 2 out of 3 states on Saturday, he ended up worse off at the end of the night because Hillary’s victory in Louisiana was so huge, she picked up more net delegates than he did. Unless she is indicted, she’s going to keep him from the general election.

And, frankly, I’m glad. I have no desire to see another Clinton or Bush in the White House – the idea I would ever even consider it evokes an almost visceral repulsion – but after reviewing the specifics of his vision for the American economy, I’d take a Hillary Clinton presidency over a Bernie Sanders presidency any day of the week. I think any – again, I hate to say it but it is so extreme I cannot emphasize it enough – economically literate voter would, too. No matter who I, or you, end up voting for in the general election (I’m currently not decided), we better all pray, on the Democratic side, it is Hillary’s name on the ticket and not Bernie’s.

Even then, I’m not sure I’d worry too much. There is only a 3-out-of-100 probability of Sanders winning the Democratic nomination and getting elected to Presidency.

Beyond that, if he did manage to overcome those odds, there is practically no probability Congress, regardless of whether that Congress is controlled by Democrats or Republicans, supports his proposals, meaning we’d go into four years of gridlock. Total shutdown. He’d basically spend four years yelling from a bully pulpit. In fact, he might do some good – he’d likely instruct agencies such as the FTC and the Treasury Department to break apart companies like Comcast, shatter financial institutions like Bank of America. He’d use executive orders to promote civil rights. I’d be thrilled with him as long as he doesn’t touch the coffers. The guy can’t even manage his own household’s finances, how are we supposed to entrust the largest economy in the world to him?

In other words: What good would it do for me to vote for a guy who shares my values if I can be all but assured he’ll burn the house down? It’d be like allowing a patient with Alzheimer’s access to a stove to cook Thanksgiving dinner. Sure, their intentions are good but the consequences could be extraordinarily destructive.

I hate saying it because he shares my values, and I like him, personally, more than any other candidate. I think he’s a good man. I think he’s a man of unimpeachable integrity. I have so much respect for him for doing things like this, going to Liberty University to engage in a dialogue with the other side of the political aisle to try and find common ground. Nevertheless, I cannot go against my own best judgment, especially in a field that is my own backyard. Economically, Bernie Sanders would be a failure. His administration would do harm. I will not support people cutting their own throats by chasing promising of free goodies that are already well within our capacity to provide. The only person I think is more dangerous in this election is Ted Cruz, which would require an essay of its own.

Frankly, I wish Elizabeth Warren had run. If she proposed making college free as a societal investment – something that would cost, at most $75 billion out of our existing $3+ trillion in annual revenues – I know the numbers would work. She’s a nuts-and-bolts, debits-and-credits, bring-me-the-spreadsheet-and-I’ll-make-the-adjustments-myself kind of girl. Even if I disagree from time to time with her, I don’t doubt her competence and capabilities. I have no faith in Bernie Sanders after seeing this plan. None. He cannot be trusted with the keys to the kingdom.

Finally, if you’re interested in reading another analysis of Bernie’s tax policy, check out the Urban-Brookings Tax Policy Center’s special report [PDF]. They estimate it would raise $15.3 trillion in new taxes, expand the government at least 7% of GDP more than its current levels, and reduce incentives to save, invest, and work for all income brackets. It doesn’t factor in the supposed cost savings of Bernie’s free medical care system as they are experts in tax policy, not health care projections, which, itself, would require another essay. While it is true the lack of health insurance premiums would offset some of these costs, the system, as designed, is monstrously stupid. It suffers from the same economic illiteracy the tax plan does. For example, Sanders wants to eliminate co-pays. Anyone who has any exposure to behavioral economics knows this is madness. Co-pays serve as a sort of dis-incentive to make sure resources are allocated more efficiently as people will hesitate to go into a hospital or take medication if they think it’s only a minor problem. That’s a good thing. It means better outcomes for everybody. It’s a health care plan built upon wishes and hopes, ignoring how humans actually behave in the real world.

This whole thing has made me feel like “everything old is new again”. I realize the only group that supports Sanders is overwhelmingly the 18 to 24 year olds but, still … this is the same recycled garbage that the free world had to be liberated from a generation ago, which led to the biggest standard of living increases in human history. They weren’t there to experience it and are buying this hook, line, and sinker. I mean, God in Heaven … an effective tax rate – not marginal, but effective – of between 50% to 65% all-in on a self-employed, middle-of-the-road dentist? What is this man thinking? It would make me ashamed to be American. Short of special conditions, such as war time military build-ups, nobody is entitled to that much of another’s output. Nobody. It’s immoral. His whole proposal is immoral.

Who’d have thought? No, really. Who’d have ever thought that Hillary Clinton would be a firewall between this madness and sanity? Reading through it, it was so bad I honestly began worrying about the potential for email indictment because I almost cease to care about her personal ethics and morals if it means she stops this. I don’t have to trust her. I know the very things that make her so effective at her job are what make her unlikeable to the public – a ruthless, conniving, disingenuous, frigid, politically-savvy kind of sociopathy. This is a woman who threw a fit about a member of her staff updating the parental forms in the State Department, removing “Mother and Father” and putting “Parent 1 and Parent 2” so couples like Aaron and I could fill out the documents when we traveled with our (future) kids, enraged that it might give Sarah Palin a new line of attack. Unlike President Obama, who seems to stick pretty closely to his core principles, I have little doubt she’ll throw someone under the bus if it is politically expedient. That is far preferable to the lunacy in Bernie’s tax document. That’s how bad it is. The vision he has for his administration is one of nearly unrestrained greed. His avarice makes Goldman Sachs look like a bunch of choir boys. You and I become chickens to be plucked, our efforts and talents extracted at confiscatory rates and transferred to those who have neither earned it nor deserve it.