In 2008, candidate Barack Obama's tax policies sought to achieve the normal ends of Democratic tax policy: Fund the basic operations of the federal government, give more money to the poor and middle class, and take more money from the rich. That is, for the most part, what we expect Democratic tax plans to do.
But the tax plans Hillary Clinton and Bernie Sanders have unveiled are more radical than that. Yes, they raise money to fund government operations, and sure, they redistribute wealth a bit. But their real aim is far more ambitious: They want to change the way the economy actually works.
Behind these plans is an important change in the Democratic Party's thinking on economic policy. In the '90s and even the aughts, the dominant school of thought in the Democratic Party was that the market worked pretty well and the government should simply make sure everyone benefited. But today, Democrats think the economy is broken in fundamental ways — that key players are making unwise, even destructive, decisions — and they want to use the tax code to fix it.
Clinton's fight against "quarterly capitalism"
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Clinton's plan is aimed at what she calls quarterly capitalism. "Everything is focused on the next earnings report or the short-term share price and the result is too little attention on the sources of long-term growth: research and development, physical capital, and talent," she's said.
Her fix — or, more accurately, one of her fixes — is a change to how capital gains are taxed. First, in order to qualify for the lower tax rate enjoyed by long-term capital gains, the investment would have to be held for at least two years (currently, a long-term capital gain can be held for as little as one year). Second, she would tax capital gains held for at least six years at a lower rate than capital gains held for only two years.
As Vox's Matt Yglesias writes, Clinton's plan "would make it more lucrative to be a patient investor than an impatient one, which might help generate an overall more patient climate on Wall Street — boosting corporate investment and fostering more long-term thinking." At least that's the hope.
Forget making Wall Street more patient. How about just making it smaller?
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If Clinton's tax is meant to slightly change how Wall Street does business, Bernie Sanders's tax plan is meant to make Wall Street do less business altogether. Sanders has proposed a financial transactions tax — essentially, a tiny tax on every single financial transaction.
Financial transactions taxes are standard across much of the developed world. As the Tax Policy Center notes in an excellent report, they already exist in the UK, France, South Korea, Russia, China, India, and more. Currently, Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain are coordinating to implement a joint financial transactions tax in 2016. The US, in fact, already has very small financial transactions tax that's used to fund part of the Securities and Exchange Commission.
Sanders is proposing a much larger tax that would cover more kinds of financial transactions, and he would use the money to subsidize college tuition. The idea, as he puts it, is to "reduce risky and unproductive high-speed trading and other forms of Wall Street speculation."
Sanders wants to use the tax to change how Wall Street works: He wants to make high-volume trading less profitable and, in doing so, ensure there's less of it. Behind this argument is the idea that Wall Street has grown too big and too complex, and an easy way to make it smaller is to make some of its most questionable activities less profitable.
Can a tax save the world?
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"Look, we have got to come up and answer a simple question," Sanders said in his interview with Vox. "Are the scientists right or are they wrong? If they are right they're telling us that the planet Earth will be 5 to 10 degrees warmer by the end of this century Fahrenheit. That will cause cataclysmic changes in terms of drought, weather disturbances, rising sea levels, acidification of the ocean, international conflict. If they are right — I believe they are right — we have got to move in a very, very bold way. We have to do it yesterday."
Sanders's boldest move on climate change is his plan for a carbon tax. He has introduced legislation, alongside Sen. Barbara Boxer, that would tax carbon emissions at $20 per ton. According to the Congressional Budget Office, the tax would generate about $1.2 trillion over 10 years. Sanders would rebate 60 percent of the revenue to consumers, use about 25 percent to pay down the debt, and pump the remainder into weatherization and clean energy programs.
The point of this tax, though, isn't to raise money. It's to change the way the economy works. By making carbon-intensive activities more expensive, Sanders hopes to push producers and consumers toward more sustainable alternatives. The better the tax works, the less money it will raise, as less carbon will be emitted for the government to tax.
To some economists, though, this isn't so much an effort to change markets as to fix them. The argument is that carbon emissions carry an unpriced cost — environmental devastation — and the way to make the market work is to add that cost into the price so consumers can make more informed decisions.
"There's a wide, bipartisan consensus among economists that this is the way to fix a well-defined market failure," says Len Burman, head of the Tax Policy Center.
The big picture: Democrats aren't happy with the economy
These various plans — and more are sure to emerge as the primary wears on — speak to a fundamental truth in liberal politics right now: There's a broad-based belief that the American economy is fundamentally broken.
This is in contrast to the late '90s, when the economy was growing rapidly and centrist Democrats successfully argued that liberal policies should basically leave the market alone and simply redistribute the gains afterward. But with wages stagnating, inequality rising, and greenhouse gases being pumped into the atmosphere, that consensus is breaking down.
To Democrats, the Bush and Obama years are evidence of what happens when policymakers decide to leave markets to take their course: Wall Street grows too big and too reckless, corporations become shortsighted and profit-obsessed, workers lose the power to bargain for higher wages, and environmental considerations are basically ignored. And so Democrats are no longer content to simply let the market do its thing and then use taxes to spread the profits around.
