WASHINGTON DC (February 25, 2020) — Democratic presidential candidate Senator Bernie Sanders (I-VT) today unveiled his plan to provide free universal child-care and pre-kindergarten education for all. Per his campaign website, the proposal would cost $1.5 trillion over ten years and would be financed by his plan to impose an annual graduated wealth-tax on households with a net worth over $32 million. However, it is not clear that Sen Sanders’s wealth tax would raise enough to finance his child care plan, housing plan, and part of Medicare for All, as intended.
What's in the Universal Child Care and Pre-K Plan?Sen Sanders would offer free full-day universal child-care and education to all children from infancy through kindergarten age.
Up to age three, a federally-funded but state-administered program would offer at least ten hours a day of child-care to all parents. Starting at age three, school districts would be required to offer full-day, full-week pre-kindergarten to all children that would also be paid for by the federal government.
The federal government would fund both the operating costs and investments in construction and renovation of child-care facilities and preschools for the programs. Small centers and home-based child-care operations would also be eligible for this funding. While the federal government would cover costs, states would be required to meet a variety of quality standards — including wage standards and limits on the amount of children per adult worker and size of the groups of children.
Sen Sanders’s plan would also ensure support for children with disabilities, including through new federal standards, greater research, expanded access to Augmentative and Alternative Communication technology, and new technical assistance for teachers of students with disabilities.
In addition to providing for universal child-care and pre-K, Sen Sanders would double funding for the Maternal, Infant, and Early Childhood Home Visiting Program and pass the Universal School Meals Act, which would provide free meals and snacks all year long for every child enrolled in child-care and pre-K.
How Much Would the Plan Cost and How Would It be Paid For?The Sanders campaign estimates its universal child care and pre-K plan would cost the federal government $1.5 trillion over ten years. We are not aware of any independent estimate of this particular plan; however, estimates of similar plans suggest this cost estimate is at least the right order of magnitude.
To fund this $1.5 trillion, Senator Sanders has proposed a tax on extreme wealth. Specifically, a wealth tax would be imposed annually on households with over $32 million of net worth. The tax would be 1 percent of wealth up to $50 million, 2 percent up to $250 million, and would continue to rise on a graduated schedule until reaching 8 percent for household wealth over $10 billion.
Based on the work of economists Emmanuel Saez and Gabriel Zucman, the Sanders campaign estimates this wealth tax would raise $4.35 trillion. This would be enough to finance Senator Sanders's $1.5 trillion universal child care and pre-K plan, his $2.5 trillion housing plan, and $350 billion of his Medicare for All plan (note that our analysis previously assumed he would dedicate $800 billion, not $350 billion, to Medicare for All).
In our assessment, however, Senators Sanders’s wealth tax is likely to raise significantly less than advertised due to high levels of tax avoidance and the erosion of taxable wealth over time. We believe the wealth tax is likely to raise roughly $3.3 trillion. Assuming the proceeds are distributed evenly, that would leave the universal child care and pre-K plan nearly $400 billion short.
The Saez and Zucman estimate of the wealth tax assumes 15 percent avoidance rates and 4 percent revenue growth — which is a reasonable assumption for a 2-percent wealth tax (assuming an 8-percent elasticity as they do). However, as the tax-rate rises so too will legal and illegal efforts to avoid the tax — by hiding, under-valuating, spending, donating, distributing, or otherwise diminishing taxable wealth. The 8-percent elasticity Saez and Zucman identify in the literature would imply a 47-percent avoidance rate for the very wealthiest households paying the 8-percent tax.
A high wealth tax will also, by design, reduce the amount of wealth held by rich households and thus shrink the tax-base over time.
Max Ghenis, who appropriately accounts for the fact that avoidance rises with the rates, estimates the Sanders wealth tax would generate $3 trillion — about a thid less than the Saez and Zucman estimate. Penn Wharton Budget Model and Tax Foundation, which incorporate elasticities and also tax-base erosion into their estimates, estimate revenue of around $3.3 trillion. These figures are based on conventional scoring; both modelers find less revenue from dynamic scoring.
Note that the American Action Forum — which, like Saez and Zucman, assumes a fixed avoidance rate and no tax base erosion — estimates $4.1 trillion of revenue.
In our assessment based on the most comprehensive estimates, Sen Sanders’s wealth tax will fall somewhat short of financing his proposals.
Where Can I Read More?-
American Action Forum — Wealth Taxes and Workers
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Max Ghenis — Warren’s wealth tax would raise less than she claims
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Penn Wharton Budget Model — Senator Bernie Sanders' Wealth Tax
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Saez and Zucman analysis of Sanders and Warren wealth taxes
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Tax Foundation — Analysis of Sen Warren and Sen Sanders’ Wealth Tax Plans
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Committee for a Responsible Federal Budget — Primary Care: Estimating Leading Democratic Candidates’ Health Plans
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With the 2020 campaign now in full gear, the presidential candidates are putting forward many ambitious proposals aimed at solving very real problems and concerns. The voting public deserves to know how much these proposals will cost and what it means for the debt we will be leaving to our children and grandchildren.
This policy explainer is part of our US Budget Watch 2020 series covering the 2020 presidential election. In the coming weeks and months, we will continue to publish analyses of candidate proposals that are having the greatest impact on the debate over our nation’s future. You can read more of our policy explainers and factchecks here.
