Don't let the "socialist" in "democratic socialist" fool you: The U.S. economy under a President Bernie Sanders could be pretty great, according to a new report.
An analysis of the Vermont senator's spending and tax proposals conducted by Gerald Friedman, an economist at the University of Massachusetts Amherst obtained by TheStreet indicates that many Americans would be much better off with Sanders in the White House. The analysis was first reported by CNNMoney.
Friedman, who says he drew most of his methodologies and numbers from the Congressional Budget Office, found that if the candidate were elected and able to push his plans through Congress -- spending programs, progressive tax increases and regulatory changes -- the median household income would soar by about $22,000 by 2026, and the gap between the rich and poor would narrow dramatically.
According to the analysis, Sanders' plan to pour $14.5 trillion into the economy over a 10-year span would mean nearly 26 million jobs would be created, and unemployment would fall to 3.8%. Poverty would drop to 6%, compared to the CBO's forecast of 13.9%, and the economy would grow by 5.3% annually, instead of 2.1%. A minimum wage increase and tax hikes on the wealthy and corporations would lead to a shift in income to the middle class.
And as for the deficit, what deficit? By Sanders' second term, we'd see a surplus.
"The Sanders spending program is a significant stimulus to an economy that continues to underperform, with national income and employment at levels well below capacity," Friedman writes, predicting it will "lead to a dramatic acceleration in economic growth and employment" and return economic conditions to the prosperity of the late-1990s or mid-1960s.
The model indicates that real wages, which have been stagnant for decades, would grow at a rate of nearly 2.5% annually. Friedman noted that this was perhaps the most surprising aspect of his findings -- namely, because wage growth still won't rival productivity.
"Even at that level, wages are still rising a little slower than productivity growth, while through American history, until the 1970s, wage growth and labor productivity growth were almost identical," he said. "It says something about how deeply entrenched wage stagnation has gotten in the U.S. economy."
He pointed to the decline of labor unions and the rise of the gig economy as potential explanations.
Like Sanders, Friedman believes in democratic socialism, but he says his analyses are based entirely on Keynesian economics have "nothing to do with socialism, Democratic or any other type." While he plans to vote for Sanders in the Massachusetts primary, he likes Hillary Clinton as well and has donated to both campaigns.
Since starting tracking and analyzing Sanders' proposals last summer, Friedman has detected little variation in his plans. He did, however, note minor adjustments to his health care platform, of which he has produced a separate analysis. "He's changed the funding program for his health care and made it a little less progressive," he said, tying the decision to concerns that the revenue expected from the senator's financial transactions tax may not be as high as originally anticipated.
Of course, not everyone agrees a President Sanders would be such a boon for the U.S. economy.
The Committee for a Responsible Federal Budget concluded that Sanders' health care plan and proposed offsets would cover only three-quarters of his claimed cost, meaning a $3 trillion shortfall over the span of a decade.
An analysis of the Vermont senator's tax proposals produced by the Tax Foundation in January calculates that the U.S. gross domestic product would drop by 9.5% over the long term, and wages would decline by 4.3%. While the group acknowledges Sanders would raise tax revenue by $13.6 trillion in a 10-year period, it claims the IRS would only end up collecting $9.8 trillion because of decreased economic output (the assumption being increased taxes translates to slowed growth) and that six million jobs would be lost.
"They show it as being a very different picture," said Anthony Nitti, partner at accounting firm WithumSmith+Brown, adding that he leans toward the Tax Foundation's model and its use of dynamic scoring, which takes into account the impact of tax changes. "It's hard to imagine that increasing tax rates as substantially as we're talking about [with Sanders] would stimulate the economy to the extent being discussed in [Friedman's] analysis," he said.
Friedman acknowledged that his model may be a little optimistic but held that Sanders' plans would still lead to a big jump in growth. He also noted that the Tax Foundation, which at times appears to lean right, has large omitted spending considerations from its examination.
"Most of his tax programs finances a health program that replaces private health insurance premiums, so you take money out of one pocket, and you're actually putting more money back in the other pocket," he said. "You're actually putting more money back into the economy, and they left that out."
Dean Baker, economist and co-director of the Center for Economic and Policy Research, said that while an increase in taxes to the extent that Sanders is proposing will likely have some impact on behavior and growth, it probably will not be as high as the Tax Foundation has proposed. As for Friedman's analysis, while it does paint a sunny picture, it is not an absurd one.
"The basic story that he seems to be saying is to reverse the upward distribution of income over the last 40 years, so basically redistributing 10 percentage points of income to the rest of the population, then assuming normal healthy growth ... that's evenly shared," Baker said. "That would give you his numbers. That's an optimistic scenario, but I don't think that's a crazy scenario."