The Cost of Cortez: Nearly $2 Trillion Per Year

Authored by: Matt Palumbo

Whilst appearing on The Daily Show with Trevor Noah, something amazing happened to the Democratic-socialist darling Alexandria Ocasio-Cortez. She was actually asked how she’d pay for the wide array of social program’s she’s campaigning on.

“This is an excellent, excellent question,” Cortez told Noah. “…if we reverse the [Trump] tax bill, raised our corporate tax rate to 28 percent … if we do those two things and also close some of those loopholes, that’s $2 trillion right there.” She also cited cuts to defense, which she estimates would save an extra trillion or two. All estimates are over a ten year period.

So, she’d be able to fund $3-4 trillion dollars worth of programs, or $300-400 billion a year, but her answer doesn’t give the full context needed. While most hear “two trillion” and think “a lot,” the cost of the programs she needs to pay for cost an order of magnitude more. I’ll focus on just three; Medicare for all, free college, and a Federal jobs guarantee.

Medicare For All – AT LEAST $540 Billion A Year 

There’s been much confusion from a new Mercatus Center Study on the costs of Bernie Sanders’ latest “Medicare for all” proposal, with both sides claiming the study supports them. The study concluded that a Medicare for all program (by Bernie’s specifications) would add $32.6 trillion to the federal budget over the next ten years. In response, Bernie Sanders thanked the Koch Brothers for the study (as they fund Mercatus), and pointed out that $32.6 trillion is $2 trillion less than what total healthcare spending (public and private) in the US is expected to be over the next ten years.

The $32.6 trillion estimate however was a massive understatement, as the study conceded that all the components of Bernie’s plan would be implemented without any problems. Among those assumptions included:

  • Doctors, hospitals, drug companies and the like would face an immediate cut of 40 percent in their payments. A separate report by Health Affairs estimates that doctors would have to earn half their current salaries to make socialized medicine work, which is in line with Bernie’s proposal.
  • Bernie’s plan assumes that healthcare spending would decrease 11% if implemented. Given that over 30 million people would be insured under his plan, you’d have to assume that the newly insured use ZERO healthcare, while the previously insured use 11% less.

The study itself notes how unrealistic these expectations are – so it’s unclear what Bernie was “thanking” them for. Without any provider cuts, the Mercatus study puts the cost at $40 trillion over ten years, which turns Bernie’s supposed $2 trillion surplus into a $5.4 trillion deficit over ten years, or $540 billion a year. Bear in mind, this is the absolute minimum such a proposal would cost.

Debt Forgiveness and Free College – $1.5 trillion + $120 Billion Minimum Per Year  

The Tax Policy Center estimates that a “free public college” program (based off of Bernie Sanders proposals) would cost $807 billion over ten years, or roughly $80 billion a year. That’s based on a number of assumptions; that the number of students attending college wouldn’t increase (spoiler alert: it would), that colleges and universities wouldn’t raise tuition in the face of a truckload of Federal money, and most important of all, we’re to assume there’s no substitution with private students leaving for public schools. On that last point; who paying $50,000 at a mid-to-low tier private school would take on the debt when they can go to a public school for free?

Furthermore, the Bernie plan assumes that the Federal government would cover 2/3rds of the cost of “free” college, with the States covering the remaining 1/3rd. So in other words, the $807 billion figure is only 67% of the real cost (about $1.2 trillion).

Ocasio has another freebie to top this all off – a one time cancellation of student debt, costing $1.5 trillion.

Federal Jobs Guarentee – $900 Billion Per Year

Forbes Magazine’s Jeffrey Dorfman ran the numbers back in May on what a Federal jobs guarantee could cost, assuming that it would employ the then six million unemployed, and five million “discouraged, marginally attached [to the workforce], or working part time but looking for full time work.” And to transition those people to their federally “guaranteed jobs” (which would pay enough to prevent them from qualifying for government benefits) would cost an astounding $450 billion. Dorfman estimates that due to the relatively high pay of these government jobs to many low skilled workers, it could attract up to another 10 million employees, which would bring the cost to nearly $900 billion a year.

Just a minor disclaimer; Dorfman is a conservative who supports a federal job guarantee – but only under the condition that one is implemented alongside the abolition of all other federal welfare programs. Not only would that be politically impossible to implement (and doesn’t answer the question of what happens to the disabled who receive welfare and can’t work) Cortez does not advocate for abolishing other welfare programs, but increasing them instead, so a cost of nearly $900 billion annually is appropriate.

Conclusion

Cortez was able to come up with $300-400 billion in revenue from taxing “the rich” – but has proposed $1.56 trillion in new recurring spending annually (or $1.7 trillion if you amortize the cost of student loan forgiveness over ten years). Remember: every single one of my estimates is a minimum estimate on what her programs would cost. Given that our current budget deficit is a trillion dollars as is, Cortez would have to raise taxes on much more than just the wealthy to pay for her socialist pipe dream.

But don’t expect her to admit that anytime soon.

 

 

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