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Bernie Sanders' tax legacy

Sanders has introduced many ideas for tax reform, and these ideas might just outlive his candidacy for president.

Bernie Sanders, the democratic socialist Senator from Vermont, surprised almost everyone by waging a very strong campaign for President.聽 However, it is now clear to almost everyone that he won鈥檛 be the Democratic Party鈥檚 nominee.聽

While it is sometimes hard to notice, this election campaign has been聽, and Sanders has contributed a fair share. Some may even outlive his political aspirations. Here are a few of his best and worst ideas.

• A carbon tax. Sanders was the first presidential candidate to propose a carbon tax, which is a聽. The idea is a favorite among economists from across the political spectrum. It might command bipartisan support if the two parties actually could work together and Republicans could cure their pathological aversion to taxes of any kind. Indeed, in 2008, Republican presidential candidate John McCain proposed his own market-based solution to climate change鈥攁n聽.
• A financial transactions tax. Sanders was also the first presidential candidate to propose a significant tax on securities transactions. (Hillary Clinton proposed a vague but tiny tax on high-frequency trading.) Sanders鈥檚 rhetoric suggests that he thinks that Wall Street is the financial equivalent of air pollution, and his proposed tax rate was so high that it would聽聽than he hoped. Nonetheless, many other countries are considering financial transactions taxes and a well-designed version could be a significant source of revenue in the US without an undue toll on the economy.
• Huge, transparent tax increases on the rich. While Clinton would raise taxes on high-income households through various minimum taxes and other obfuscations, Sanders gets credit for relative transparency with his straightforward higher tax rates on the rich. No sleight-of-hand and needless complexity. His聽聽on capital income to 64 percent and on labor income to over 70 percent. The drawback, however, is that such high rates are almost surely unsustainable.

The giant tax increases on capital are the most problematic part of Senator Sanders鈥檚 legacy.聽 While they would make the tax system much more progressive, they would also impose very large economic costs.聽

Capital is highly mobile, which makes it harder to tax.聽 Rates as high as 64 percent would fuel illegal tax evasion鈥攕uch as not reporting sales of foreign stock鈥攁nd the growth of legal but inefficient tax shelters.

The low after-tax return to successful entrepreneurial investment could also discourage risk taking.聽 And鈥攅ven though we didn鈥檛 build this into our revenue estimates鈥攊t鈥檚 a sure bet that some investors would avoid selling assets and realizing taxable gains in hopes that a future president would lower 聽capital gains tax rates to levels closer to historical norms.

A future Bernie Sanders might learn a lesson from the Scandinavian countries whose expansive social safety nets served as a model for his spending agenda. Swedes, Norwegians, and Danes know that the only plausible way to raise enough revenue to finance government spending that averages almost 50 percent of GDP is with a very efficient tax system.

Perhaps surprisingly, those nations rely heavily on regressive taxes; for example, they all impose a 25 percent Value Added Tax on consumption. They also levy a so-called聽, which combines a steeply progressive tax on labor income with a low flat-rate tax on capital income, and assess higher payroll taxes than the United States.聽 Sanders did propose to increase payroll taxes, but his capital income taxes rates would be very high by international standards.

The next Bernie Sanders would do well to look at Scandinavia鈥檚 tax systems, not just their spending.聽 And that might make for a very stark and revealing presidential choice, especially if the next Republican candidate emulates Marco Rubio鈥檚 or Ted Cruz鈥檚 intriguing proposals for efficient consumption taxes combined with much, much smaller government.

This article first appeared at .