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Quick Notes

  • Sanders and Harris, among others, are proposing a transaction tax to pay for their various programs
  • A transaction tax, according to their plans, would pay for things like existing student loan debt and a “Medicare for all” plan
  • Unwanted negative economic impacts from these plans may be unavoidable, and much harsher than the candidates are willing to admit

With the 2020 election campaigns well underway, presidential hopefuls from both sides of the aisle have been striving to market their policies to the millions of voters who will decide their fate come election day. Despite hopeful positive impacts on the market and for the general public, however, some of their proposed policies may do more potential harm than candidates willing to admit. Two front runners of the Democratic Party, Bernie Sanders and Kamala Harris, have become a bit of a focal point on this issue.

What policies are they proposing?

Bernie Sanders’ mantra of “free college” might be a familiar-enough phrase at this point (as well as his goal of eradicating student loan debt), but how does he plan to pay for it? Well, his plan involves something called a transaction tax. This would mean that a small tax would be placed on the trading, buying, and selling (basically, any kind of transaction) of stocks, bonds, and derivatives in the market.

The tax percentages Sanders proposes would be quite small: 0.1% for bonds, 0.5% for stocks, and 0.005% for derivatives. To the layperson, that might seem like barely anything at all.

Sanders argues that this kind of tax, aimed directly at Wall Street, is deserved due to Wall Street’s direct fueling of the 2008 recession. He also makes a claim that during the financial crisis, Wall Street received an enormous taxpayer bailout, and now deserves to pay back that bailout to help save the dwindling middle class.

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Fellow presidential candidate Kamala Harris has also proposed a transaction tax as part of her economic vision, though hers is aimed towards a different sector. Rather than using the tax revenues to get rid of student loan debt, she proposes to use the money towards making healthcare more affordable, in her “Medicare for all” plan.

What positive impacts are the candidates hoping for?

Certainly, these policies seem like good, sound ideas in and of themselves. But any time something is changed on the market, there are some pretty drastic impacts that we might not have seen coming. Luckily for us, some experts have weighed in on exactly what kind of impact these policies would have, so we don’t have to foresee the impacts all on our own.

As Sanders and Harris both point out, there would be tremendous revenue generated from these transaction taxes. Sanders’ team argues that the tax would raise amounts of up to $220 billion in the first year alone, and continue raising up to $2.4 trillion over the next ten years.

This money would be put towards paying off existing student debt (which sits, according to some numbers, at around $1.6 trillion). However, not all impacts of these taxes are predicted to be beneficial or positive; in fact, they’re predicted to have a number of unwanted consequences on otherwise innocent bystanders.

Some of our students may gain, but many would suffer, alongside our teachers and our economic market.

Many possible negative side effects to their good intentions

First of all, Sanders’ plan would, perhaps ironically, have a potentially devastating impact on students in terms of their college saving funds. According to experts, under this new tax plan, a top 20 university endowment would pay about $24 million every year, which would take away about 3,000 scholarships for students.

In a similar vein, college savings funds like a 529 plan would take a serious hit. A top 5 public university would have to pay around $19 million each year, which is the equivalent of the in-state tuition of approximately 1,900 students.

Students relying on college savings funds aren’t the only people who would face a negative impact under this plan, however. The tax would also be implemented on things like pension funds. Teachers, firefighters, and other state or city employees would see a significant reduction in their pensions as public pension funds would have to pay anywhere from $700 million to $1.3 billion each year, depending on the size of the fund.

Unintended effects on retirement plans and investing

Even private retirement plans like 401ks and IRA plans would be affected—a plan with $100,000 invested would, at the end of 40 years, have paid over $64,000 in taxes. 

In addition, as investors’ stocks and bonds are being taxed, they are more likely to take and invest their money elsewhere, driving money out of our economy and into other countries’. Other countries that have implemented similar taxes experienced a significant economic decline as their investors shifted their trade and money elsewhere.

Overall, experts are divided over the wisdom of these proposed plans. Some of our students may gain, but many would suffer, alongside our teachers and our economic market.

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