No, It isn’t Free Stuff: Supporting Bernie Sanders is About Understanding Harsh Realities

Relatively recently, the Congressman from my district — Republican, Lee Zeldin — posted this inflammatory statement on his Facebook page, targeting young people and Democratic presidential hopeful, Senator Bernie Sanders:

Being in this target demographic, and one of Mr. Zeldin’s constituents, I felt I had to address this post.

This argument that Bernie Sanders supporters just want “free stuff” like universal health care system and free tuition at public colleges and universities, which isn’t economically feasible is a narrative we hear from people on both sides of the aisle; Republicans like Lee Zeldin, and establishment Democrats like Hillary Clinton. In the debate before her victories on March 15th, the Democratic front-runner said “As my dad used to say, if it sounds too good to be true, it probably is…Senator Sanders’ plan is expensive….” Earlier in the primary, in her Nevada victory speech, Clinton accused millennial Sanders supporters of only wanting handouts, stating “It can’t just be about what we are going to give to you.”

Before we get into the economics, let’s first put Bernie Sanders’ ideas (free tuition at public colleges and universities, universal health care, $1 trillion in infrastructure spending to stimulate employment, breaking up the banks, and publicly financed elections) in perspective because simply stating that his supporters are seeking handouts is unfair. These are some of the biggest problems we face as a nation:

1. There are currently 20 million Americans who are still either uninsured or underinsured. Millions more are unemployed or underemployed.

2. There is a historic student debt crisis preventing college graduates from striking out on their own after finishing school. The prospect of crippling debt also deters many young people from pursuing higher education.

3. Wealth inequality is at its highest level since the Gilded Age with the majority of new income going to the top one percent; the middle class is shrinking. Wages have stagnated for decades (since Reagan’s presidency) while the cost of living has risen steadily.

4. The megabanks that crashed our economy by engaging in risky subprime derivatives trading are now bigger than ever, and subprime lending continues, largely unchecked.

5. Following a trend of Supreme Court decisions which culminated in Citizens United, the amount of money being spent on elections has skyrocketed. Lobbying has become a legal form of bribery which undermines our democratic values and process. The gridlock in DC is largely the result of influence peddling by lobbyists. Mr. Zeldin is, himself, funded by two of the most influential special interests: the Koch Brothers. For that matter, so is Hillary Clinton.

6. The U.S. is now an oligarchy. Our government responds only to the interests of the wealthy.

And that brings us to the second part of the narrative: the idea that the kinds of solutions Bernie Sanders is proposing are too expensive. These claims are predicated on the idea that United States is in a debt crisis, or at the very least could face one if we’re not careful. It is a common talking point, but it does not hold up to scrutiny.

It is important to understand a little history when engaging in the spending debate. Our country was founded on debt. Alexander Hamilton convinced President George Washington to pay back war bonds after the Revolution, thus establishing our national credit. What Hamilton understood was that credit is necessary to a growing economy, and debt is thus beneficial. Unlike Thomas Jefferson whose ideal was a yeoman agrarian economy, the first Secretary of the Treasury recognized the potential for the United States to become the commercial empire it is today — indeed, he laid the foundations. Nevertheless, concerns over government spending have persisted since the Founding.

To do as Mr. Zeldin did, and hold up the aggregate U.S. debt as a dollar figure, is incredibly misleading. And he knows it:

Unfortunately, the Congressman appears unaware that when economists determine the impact of national debt, they look to the ratio of interest payments to our national GDP. Based on that ratio, we are not now in a debt crisis.

In fact, spending and borrowing are not problems unless we lose our ability to pay our expenses, and thus harm our credit. The money for those payments comes directly from taxes on businesses and individuals. But before we start taking up arms about how spending hurts us because it means more taxes, we have to understand something: As we make payments, we help our credit which helps our economy. Good credit generally means low interest rates which translate into high levels of investment. When there’s high levels of investment, investor confidence is high. High investor confidence is generally evidence that our debt is not problematic. Such is the case today and for the foreseeable future. In other words, we’re fine.

That’s not to say the situation won’t change eventually, but statements like Mr. Zeldin’s that we are “kicking the can” is hyperbolic. As long as we can keep up with our payments, and we don’t default like we did during the government shutdown, we will be alright. We just have to ensure that taxes are high enough to sustain our growth, and that they are paid.

And that is exactly what Sanders’ plan does. According to a recent study based on standard models, Bernienomics would result in savings overall, as well as unprecedented growth. Here are three ways the Vermont Senator’s plan brings money back into government:

A) Bernie’s plan closes tax loopholes for individuals and corporations.

According to a study from October reported on by Reuters, “[t]he 500 largest American companies hold more than $2.1 trillion in accumulated profits offshore to avoid U.S. taxes and would collectively owe an estimated $620 billion in U.S. taxes if they repatriated the funds.” This means that the “Treasury Department loses an estimated $90 billion in tax revenue annually” as Business Insider points out. As it stands today, Fortune 500 companies are able to get away with paying zero federal income tax. Such was the case with CBS Corporation and Mattel in 2014.

How does this happen? Tax loopholes allow companies to shift their earnings (on paper) to their overseas tax havens. Essentially, corporations can report domestic losses, in spite of earning the majority of their revenue domestically, and have it appear as though the domestic earnings were made overseas through subsidiaries. Today, many major U.S. corporations report the majority of their earnings in this way.

Tax havens are exploited, not only by companies, but by individuals, at an estimated cost of $1,259 a year to the average taxpayer. As I mentioned earlier, we have to pay our expenses, and the money has to come from somewhere.

The excuse we often hear, from people like Zeldin, for maintaining these loopholes is that companies will leave if we don’t. These politicians point to the fact that many U.S. corporations report earning a majority of their money overseas through subsidiaries. Of course, the problem with this argument is that it is circular because the tax loopholes allow companies to report domestic income as foreign.

In reality, eliminating tax havens would render the location of corporate headquarters irrelevant because companies will not cease operations here — they can’t afford to. We are the world’s largest consumer economy. Take Burger King, for example, which recently merged with Tim Hortons, and “relocated” to Canada. Burger King still has 12,000 restaurants in the United States. The only difference is now, the company is legally able to avoid taxes it would otherwise have to pay.

B) Bernie’s plan ends the tax breaks for capital gains and dividends for the wealthy, and eliminates the exemption for gratuities and bequests.

Capital gains, the money one makes on investments, are currently excluded from taxable income, and are instead taxed at special low rates. Unlike income, these earnings are not taxed annually, but rather whenever an investor decides to cash out. The idea behind this exclusion was to encourage investment, but the end result has only been to benefit one group of people: the top 1 percent.

Rather than stimulate the economy, the wealth gap has exploded. Billionaires like Warren Buffet, are now able to enjoy lower tax rates than ordinary, hard-working Americans.

Here’s how capital gains break down. Gains on investments held for less than a year (short term capital gains) are taxed as income, but as soon as an investor crosses that one year marker (long term capital gains), the highest rate (graduated) that he or she will have to pay is 20 percent.

Taken as an expenditure, the capital gains and dividends exclusion costs the United States billions annually. In the 2014 fiscal year it cost the American taxpayers $91 billion.

C) Bernie’s plan raises income tax rates — especially on the wealthiest Americans.

Income tax rates on top earners are at some of the lowest rates they’ve ever been since the tax became permanent with the adoption of the 16th Amendment. Every Republican president since Ronald Reagan — besides George H.W. Bush — has slashed income tax rates. Over time, this has contributed to our deficit.

So what are politicians like Lee Zeldin and Hillary Clinton really saying when they criticize Bernie’s economic agenda?

Politicians who complain about the cost of investing in the American people, while at the same time refusing to raise taxes (Lee Zeldin has expressed his opposition to raising taxes on the wealthy and even signed a ‘no tax’ pledge in 2013; Hillary Clinton has said it is her desire to “raise incomes, not taxes”) are telling voters something very important: there is no political will for the kind of overhaul we need.

Hillary Clinton’s economic plan does far less than Bernie’s; it does not provide for universal health care or free tuition at public colleges and universities. She proposes a more modest spending increase than the Vermont Senator. As far as income tax is concerned, Hillary would not raise taxes on anyone making $250,000 or less annually. According to Mother Jones, this means she would exempt many wealthy individuals from tax hikes. Her capital gains tax proposal is equally disappointing. Under her plan, taxes gains on investments held for up to two years would be the same as our current income tax rate, and has decreasing rate maximums for investments the longer they are held. Gains on investments held longer than six years which includes many of the assets held by billionaires, are subjected to an unchanged maximum rate of 20 percent.

Still, as limited as Clinton’s proposals are, they’re nothing compared to Zeldin’s austerity and tax cutting approach to governing.

All the while, real people are suffering.

This situation is why people support Bernie Sanders. We don’t have many leaders on either side of the aisle with the courage to stand up for what is right over what is politically expedient. Bernie is one of the few politicians to face the harsh realities of America today. Our taxes do need to go up, and we need sweeping government action. Misguided debt hawking and the political points to be earned by opposing higher taxes pale in the face of the needs of our families, friends, neighbors, and selves. Let’s grow up instead of reducing Sanders’ appeal to greed, laziness, and naivete.