Bernie Sanders has proposed a lot of tax increases.
True to his brand of democratic socialism, he wants to boost the top income tax rate to 52 percent, add a new 2.2 percent income tax and 6.2 percent payroll tax for everyone, make the rich pay Social Security taxes, make corporations pay taxes on foreign profits as they're earned, tax carbon, tax financial transactions, and raise the top estate tax rate to 65 percent for billionaires, to name a few of his proposals.
Whether you love or hate those ideas, they add up. A new report from the Tax Policy Center, the leading nonpartisan think tank for tax and revenue issues, finds that Sanders's proposals would increase taxes by $15.3 trillion over 10 years, or about $1.5 trillion per year. That's a substantially bigger tax increase than Donald Trump's plan is a tax cut.
TPC doesn't estimate the effect of tax policies on economic growth, but director Len Burman noted, "If you wanted to test the economic effects of a very large tax increase, this plan would be a good experiment. That is not an endorsement."
The overwhelming share of the tax hikes goes to paying for Sanders's single-payer health care plan, which the campaign itself has estimated would cost an additional $1.38 trillion per year. An independent analysis by health care economist Kenneth Thorpe has estimated that the real number is closer to $2.5 trillion, in which case Sanders would need to propose even more tax increases.
The biggest revenue raisers, the TPC report finds, are the new 6.2 percent employer payroll tax ($4.3 trillion over 10 years), repealing the tax exclusion for employer-provided health insurance ($4 trillion), the new 2.2 percent income tax surcharge ($1.8 trillion), increasing top rates (about $1.7 trillion), and the plan to apply Social Security taxes on income over $250,000 ($1.2 trillion).
The tax increases Sanders proposes are progressive. Over two-thirds of them would be paid by the richest 20 percent of Americans, and over a fifth would be paid by the richest 0.1 percent, who'd face an average tax hike of $3.1 million (or about 45 percent of their income). The poorest fifth of Americans, by contrast, would only see taxes go up by $165 on average, or 1.3 percent of their income.
By 2025, the poorest Americans would actually save money. That's because Sanders's carbon tax is paid back to households making under $100,000 in the form of a rebate; the tax increases by 5 percent plus inflation every year, so eventually that rebate becomes big enough to cancel out all the tax increases.
The middle fifth of Americans — those making between $45,153 and $80,760 a year — would see taxes go up by $4,692 a year, or 8.5 percent, in 2017. This chart by Vox's Javier Zarracina summarizes the hikes, compared to Hillary Clinton's plan which TPC analyzed yesterday.
How Sanders would increase tax rates
Sanders's proposal would increase average effective federal tax rates across the board. Currently, those in the middle fifth of the income distribution pay 13.5 percent of their income in federal taxes, including income, payroll, corporate, excise, and estate taxes. Sanders would increase that to 20.8 percent. The increases are far greater for the richest 1 percent (who'd see their average rate spike from 32.9 percent to 55.4 percent) and the 0.1 percent (from 34.2 percent to 63.7 percent):
Keep in mind that these aren't marginal rates. These are effective rates, the actual share of income that people are paying on average. The typical 1 percenter in Bernie Sanders's America would pay more than half their income in federal taxes.
That is not totally historically unprecedented. Research by Emmanuel Saez and Thomas Piketty indicates that in the 1960, the richest 0.01 percent (or the richest tenth of the richest group TPC considers) paid an average federal tax rate of 71.4 percent. By 1970 that had increased to 74.6 percent. The effective rates were lower for the rest of the top 0.1 percent, but still over 50 percent.
The tax plan does change marginal tax rates significantly as well. Combined marginal tax rates on wages from income and payroll taxes would reach a peak of 64.2 percent for the top 0.1 percent, way above their current 43.1 percent level:
The changes to marginal rates on capital gains are even more dramatic. Currently, the richest Americans face a top marginal rate on capital gains income of 24.1 percent, TPC finds. Sanders would increase that to 62 percent:
This could actually reduce federal tax revenues, not by slowing growth but by deterring people from selling their assets and incurring capital gains tax. Because of that dynamic, the revenue-maximizing top rate for capital gains is about 28 to 32 percent, according to the Joint Committee on Taxation and the Treasury Department. Sanders raises the rate far, far above that, meaning that this part of his plan could actually cost the government money.
This isn't just theoretical. As TPC notes, when the top capital gains rate was boosted from 20 percent to 28 percent in 1986, people realized almost twice as much capital gains income that year than the year before, so as to avoid future higher rates. Investors are pretty responsive to this kind of incentive.
Sanders's income tax increases are bigger than we thought
Bernie Sanders has to date touted his income tax plan as setting a top rate of 52 percent. But per the details the campaign supplied to TPC, it actually works a bit differently from that. Sanders actually eliminates the top three income tax brackets (33, 35, and 39.6 percent), leaving 28 percent as the top rate. He then adds surtaxes of 9, 15, 20, and 24 percent on top of the regular income tax.
This might seem like a technical distinction. It's not. That's because the surtaxes apply not to taxable income, but to adjustable gross income (AGI). If Sanders had merely increased the top rates, taxpayers would have still been able to enjoy their mortgage interest deductions, their charitable deductions, their state and local tax deductions, and so forth. But AGI measures income before you take deductions into account.
So Sanders's plan reduces the benefit rich people can gain from itemized deductions, including the charitable deduction. Effectively, he puts a 30.2 percent cap on their value: the 28 percent top rate, plus his 2.2 percent health care income tax. Interestingly, this is actually a somewhat more modest restriction than Obama or Clinton has proposed. They want a 28 percent cap on deductions by the rich, ever-so-slightly smaller than Sanders's 30.2 percent cap.
Sanders would also subject charitable gifts to capital gains tax. So if I were to, say, buy a painting for $200 dollars and then donate it to a charity when it's worth $200 million, under Sanders's plan I would be on the hook for tax on most of that gain. Under current law, that donation would be tax-free.
This helps explain why Sanders's proposal is so effective at raising revenue from the richest Americans. He's not just raising their tax rates; he's eliminating the best methods they currently have for minimizing their taxable income.
Update: The Sanders campaign has responded with the following statement from policy director Warren Gunnels. Essentially they dispute the analysis on the grounds that it does not include the programs the revenue would pay for. That's fair, but spending analysis is also outside the purview of TPC.
Unlike Citizens for Tax Justice (CTJ), the Tax Policy Center chose to analyze Bernie’s tax plan in a vacuum without taking into account the savings the American people would gain under his Medicare-for-all plan. That is misleading.
The analysis from CTJ found that 95 percent of American households will see their take-home pay go up, not down under Bernie’s Medicare- for-all plan which is paid for by his progressive tax plan.
Citizens for Tax Justice also found that middle class families would see their take-home pay go up by more than $3,200 a year under Bernie’s plan.
Not only did the Tax Policy Center fail to estimate the savings the American people will gain under Medicare-for-all, they also fail to count the economic gains that would be achieved by Bernie’s plan to rebuild the middle class.
Bernie has a plan to create and maintain at least 13 million jobs rebuilding our crumbling infrastructure. It is widely accepted among many economists that rebuilding roads, bridges, drinking water facilities, airports and other infrastructure needs creates jobs for Americans in the short-term while allowing commerce to flow more smoothly in the long-term, a win-win for prosperity in the U.S. The Tax Policy Center did not look at that.
Bernie has a plan to make public colleges and universities tuition free that would save the typical middle class family $9,400 a year. Creating a workforce that is more educated and less bogged down in student debt would benefit the economy immensely. The Tax Policy Center did not look at that.
Bernie has a plan to extend and expand Social Security boosting the income of senior citizens by an average of about $1,600 a year. The Tax Policy Center did not look at Bernie’s plan to expand Social Security.
Bernie has a plan to increase the minimum wage to $15 an hour and to protect the pensions of more than 1.5 million workers. The Tax Policy Center did not look at that.
Bernie’s tax plan is the mechanism for achieving universal health care and education, creating jobs, and a secure retirement. Without estimating the benefits the American people would gain under these initiatives, the Tax Policy Center’s report is inaccurate and one-sided.