Sen. Elizabeth Warren’s proposal to extend affordable childcare to everybody relies on dishonest accounting to create the impression that it is more fiscally sound than it may actually be in reality.
Warren, D-Mass., in seeking the 2020 Democratic presidential nomination, on Tuesday unveiled a sweeping proposal aimed at providing free quality childcare to everybody earning under $50,000 and heavily subsidized care to everybody else. The cost, her campaign says, would be $700 billion over a decade, to be paid for by a small portion of her wealth tax on ultra-millionaires.
The problem is the two estimates she’s relying on (one that determined the cost of the program another one that projected the money raised by the wealth tax) do not represent apples-to-apples comparisons.
The estimate that the childcare proposal would cost $700 billion over a decade was prepared by Moody’s economists Mark Zandi and Sophia Koropeckyj, who note that the analysis is done on a “dynamic basis (after accounting for the economic impacts of the proposal).” Liberals have long derided Republicans’ efforts to use “dynamic scoring” to incorporate economic growth effects of tax cuts when determining their effect on the budget. But Warren is now using such analysis, based on assumptions about the economic effects of affordable childcare, to make her spending proposal seem lower than it really is.
On its own, this may not be much of a big deal — just an example of Warren employing methods that have been pushed by Republicans for the sake of cutting taxes. However, what’s problematic is that when it comes to estimating the effect of her wealth tax, Warren does not rely on dynamic analysis, even though taxing wealth could distort investment decisions and thus have a detrimental impact on growth.
The Zandi and Koropeckyj analysis asserts that, “There is little impact on the economy from the higher taxes on wealthy households.” However, footnote vii notes, “One complication is that we have not evaluated the budget or economic implications of the senator’s wealth tax. As such, we instead assume that her child-care program is paid for by reforms to the estate tax sufficient to generate the needed tax revenue.”
Wait, what? So Zandi and Koropeckyj’s “dynamic” analysis of Warren’s proposal considers all the positive economic effects, doesn’t consider the economic drawbacks of her wealth tax, and instead bases economic conclusions on an analysis of an alternate estate tax formulation that isn’t even in the plan?
Previously, liberal University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman, estimated that the wealth tax would raise $2.75 trillion over a decade. But that was not a dynamic analysis. Instead, what they did was take data from the Federal Reserve Board’s Survey of Consumer Finances, some of their own data sources, and Forbes list of the richest 400 Americans, to determine how much wealth was above the $50 million and $1 billion thresholds subject to Warren’s tax. That gave them an estimate for 2019, which they then used to extrapolate the 10-year cost.
So, they do not take into account negative economic feedback effects from the wealth tax, either.
Thus, Warren is relying on two different methods of analysis, one of which makes her spending seem less costly, and one of which makes her tax plan seem like it would raise more money.
So she’s being dishonest when she claims the wealth tax would raise, “four times more than the entire cost of my Universal Child Care and Early Learning plan.”
If analysts looked purely at the cost to the federal government, Warren’s childcare plan would be significantly more expensive than $700 billion, whereas if economic analysis were employed, her wealth tax would raise less money than it appears to.
