Bernie Sanders’ wealth tax would raise $1 trillion less than he estimates, Wharton study shows

A new study from the University of Pennsylvania’s Wharton School finds that Sen. Bernie Sanders’ proposed wealth tax on the richest Americans will generate $1 trillion to $1.5 trillion less than what the campaign claims.

The results, if accurate, could undercut the critical funding needed to support his plans to develop public health care, education and hosts of other government-back programs.

The analysis also found that former Vice President Joe Biden’s plan would raise $600 billion to $900 billion less than his campaign estimates.

The study found Biden’s plan “would have little effect on the size of the economy” by 2050 as curtailed growth from higher tax rates edge out the benefits of deficit reduction, according to the study viewed by CNBC.

The Sanders campaign did not respond to CNBC’s request for comment on this story.

The Penn Wharton Budget Model assessed the budgetary and economic effects of two proposals from Sanders, I-Vt., to determine how his planned wealth tax and expansion of the estate tax would impact households and the greater American economy.

It found that the Sanders wealth tax would raise $2.8 trillion to $3.3 trillion over 10 years, about $1 trillion to $1.5 trillion shy of what the campaign projects.

The university said the estate tax expansion, meanwhile, would raise an additional $267 billion over 10 years and increase the percentage of descendants affected by the levy to about 0.5% in 2030.

The Wharton figures, if correct, would represent a marked shortfall for the Sanders campaign, which has pegged its wealth tax as integral to its campaign ambitions for proposals like “Medicare for All” and reducing student loan debt.

The campaign itself estimates the wealth levy would generate $4.35 trillion over the next 10 years and in an email to CNBC defended the senator’s plan.

Sanders’ wealth tax is progressive, meaning the rate individuals or married couples pay rises in tandem with their net worth. The Vermont senator’s wealth tax, which his campaign introduced in September, would require married couples with a net worth of $10 billion or more to pay an 8% annual tax.

Those couples with a net worth of $5 billion to $10 billion would pay 7%, and those with a net worth of $2.5 billion to $5 billion would pay 6%. The lowest bracket covered under Sanders’ plan — couples with a net worth ranging from $32 million to $50 million — would pay 1%.

The Wharton paper also sought to calculate the estimated economic effects of the Sanders taxes.

The paper said average hourly wages in the economy, including those earned by households not directly subject to the wealth tax, would fall by 1% due to the reduction in private capital formation. It also says the tax would shrink the U.S. economy by 1.1% by 2050, depending on how Congress spends the revenues.

But the campaign says it plans to put the funds toward an affordable housing plan, universal child care and Medicare for All, one of his longtime policy promises.

Though the revenues raised from the Sanders tax would cut into the wealth of the richest Americans and potentially have an adverse impact on business investment, advocates of the Sanders plan say the government programs could also lead to improved worker productivity through a healthier, smarter workforce.

That’s an important possibility for which the Wharton paper fails to account to date, at least in Sanders’ case. The school’s prior analysis of Sen. Elizabeth Warren’s wealth tax plan did allow for the revenue spent to add to worker productivity.

“The effects are largely the same,” said Rich Prisinzano, director of policy analysis at the Penn Wharton Budget Model. “You’re reducing the size of the economy as people work less. Investment becomes more expensive, you get less investment, that makes the return to labor less productive.”

In the current paper, the authors write that “the Sanders campaign does not indicate specific plans for how the wealth tax revenue would be spent” and therefore use the longstanding practice of applying the additional revenue toward federal deficit reduction.

But should Congress use the revenues in a way that makes American corporations more productive (e.g., through fewer employee sick days), the adverse impact on economic growth would at least be lessened.

The Penn Wharton Budget Model’s evaluation of Biden’s plan deemed his proposal more modest, both in terms of impact on the economy and revenues raised through proposed taxes, which tend to focus on taxing capital and corporate income.

Still, the Biden plan would raise just $2.3 trillion to $2.6 trillion over 10 years, about $600 billion to $900 billion less than the Biden campaign estimates, the Wharton model projects. The paper found that the former vice president’s plan would “have little effect on the size of the economy” and reduce GDP by 0.1% in 2030 and 2040 before increasing growth by 0.1% by 2050.

The White House candidate announced in December that his planned tax on the wealthy and corporations would pay for $3.2 trillion in promised investment in infrastructure, higher education and health care.

Biden’s campaign projects his minimum tax of 15% on the income the most profitable companies report on their books would raise $400 billion, which would help pay for a $1.7 trillion investment to pay for proposed climate change efforts and other infrastructure development.

“Joe Biden is running for president to build a stronger, more inclusive American middle class and an economy and a tax code that rewards work — not just wealth,” the campaign told CNBC in an email. “Biden has proposed unprecedented investments that will create good jobs, strengthen the middle class, make us more competitive with the rest of the world, and grow our economy — including investments in infrastructure, a clean energy revolution, and education.”

“He also has a plan to pay for all of these investments by ensuring that the highest earners and corporations pay their fair share,” the campaign added.

He also proposes paying for $750 billion in investments in health care and the same amount for higher education with other taxes that largely hit high-income earners, such as charging a higher rate on wealthy people’s capital gains and dividends.

His plan also includes provisions to crack down on tax havens as well as strengthen the link between corporate cash repatriation and U.S. taxation. President Donald Trump’s 2017 tax law created a new 10.5% minimum tax on U.S. companies’ foreign income. Corporations that benefit from lower foreign tax rates overseas must pay the difference to the U.S. Treasury each year.

Biden’s campaign, which proposes doubling that rate to 21%, says it could raise some $300 billion in the effort. He says he could get another $200 billion from imposing sanctions on countries that facilitate corporate tax avoidance.