Originally published on Forbes.com.
Bernie Sanders has finally dropped the other shoe on his tax plan. I’m pleased that he has not exactly gone crazy with the top marginal rates, although, all things considered, they are steep. Ironically, you could make a case that his plan is more conservative than many of the Republican plans. We have had a progressive income tax and an estate tax for about a century now. Bernie is proposing a rate structure that would be familiar to the band of tax professionals who are, as my last managing partner ineptly phrased it, in the twilight of our careers. A flat 15% and no estate tax, like Ben Carson proposes might turn out to be a good idea, or not, but that sharp a departure from the practice of the past century is radical, not conservative.
The tax proposals are in two sections of the campaign website here and here. The are classified based on what they are intended to pay for.
Miscellaneous Programs
The $1 trillion for rebuilding our crumbling infrastructure comes from stopping corporations from parking income offshore. Making public colleges and universities tuition-free is funded by a financial transactions tax. Expanding social security and extending its solvency is funded by applying the full social security tax rate on incomes over $250,000. A youth jobs program will be funded by cracking down on carried interest. Paid family and medical leave is paid for with a 0.2% tax on wages. Shoring up troubled pension plans would be paid for by denying like-kind exchange treatment to works of art and limiting real estate like-kind exclusion to $1,000,000 per taxpayer per year and also clamping down on estate tax discounts. Investing in clean energy is funded by cutting tax breaks to oil, gas and coal (Didn’t find a lot of detail there. Presumably percentage depletion would be part of it.)
Medicare For All
Bernie’s health care plan is the biggie. Single payer universal health care. For that there will be 6.2% employer tax and a 2.2% tax on households. Capital gains and dividends will be taxed the same as ordinary income. The tax benefit of itemized deductions will be limited to 28% (In the interest of simplicity, the AMT, phaseouts of exemption and limits on total itemized deductions will be eliminated). Estate tax exemption will drop to $3.5 million and rates will increase. And marginal income tax rates will be increased – 37% for $250,000 to $500,000 – 43% for $500,000 to $2 million – 48% $2 million to $10 million and 52% over $10,000,000.
Marginal Rates Not Unprecedented
Bernie did not go crazy with the marginal rates. Forget about Dwight Eisenhower and the 90%. Looking at marginal income tax rates alone, Bernie could say, with a straight face, that he is less of a socialist than Ronald Reagan. In 1983, the top rate of 50% kicked in, for a married couple, at $109,400, which is the equivalent of about $260,000 today. On the other hand, when you consider the elimination of the social security cap and the new health care tax, a self-employed person making in the high six, low seven figure ballpark is facing a marginal rate in the high sixties.
Since there is no talk of raising corporate rates, I could see C corporations making a comeback for professionals who would have a big incentive to keep salaries below $250,000. Maybe it would be like the Year 2 K thing where they dug all those COBOL programmers out of retirement. Only this time, they’ll be looking for elderly tax professionals. I can dream anyway.
I Get To Have Something To Whine About
I’m assuming that the 6.2% employer share would have to be paid by the self-employed along with the 2.2%. So I would have to pay 8.4%. But look at all the money I save on health insurance because, we now have Medicare for everybody. Only, in 2017, I’m finally reaching the wonderland of seniorhood with the discounts on everything and Medicare for geezers. We’ll see how long it takes the AARP to pick up on that one.
Speaking of being elderly, did anybody else notice O’Malley’s subtle reference to his youth in the debate? After Secretary Clinton remembered going to see Martin Luther King with her youth pastor while a teenager, Governor O’Malley mentioned that he was born in the year of the “I have a dream” speech”. I was watching the debate at the Sahara on Highland Street in Worcester with a Bernie Sanders group. Even the kids from WPI for Bernie Sanders seemed to feel bad for O’Malley not getting enough air time. In my opinion, O’Malley had the best line in the debate when he said that no self-respecting hunter needs an AK-47 to drop a deer. My only regret was that Jim Webb was not there so he could follow up with how he dropped some AK-47 wielders with his 1911 Colt 45.
Some Double Dipping?
The Sanders campaign seems to have made the same error I caught in the Green Party platform in 2012. You can’t count both eliminating carried interest and eliminating a special tax rate for capital gains as revenue raisers. Elimination of the capital gains rate makes carried interest moot. Here is my discussion with Jill Stein on that point.
Planning
Even if Bernie gets the nomination and is elected, it is unlikely that he will be able to get much of this program through, but I still think there might be some planning points in the proposal. The elements of the plan are likely the things that will be reached for when revenue raisers are needed for whatever purpose. Thus, it would be wise to stop stalling on any sort of gifting program involving discounts and to act sooner rather than later on large planned charitable contributions. If I get any other flashes of insight, I’ll let you know. Clearly accelerating income would be premature.
It Would Be Nice To Hear More From The Other Side
So Bernie wants to spend a lot of money and he has now indicated the taxes he wants to raise in order to have the money to spend. (I’m sure there will be critics who will argue that his plan does not raise enough, but I don’t think you can argue that it does not raise a lot.) I would like to see the Republican candidates who are arguing for drastic revenue cuts to be a little more specific about where they will cut spending to offset at least some of it. Looking purely at tax plans, the matchup that I would like to see is Carson versus Sanders. Carson’s tax plan seems to be pretty pure economic theory. If Carson specified spending cuts, there would be a really clear choice for people to make in November. Plus I would like the fact that the irrational elements that influence me would be pretty well balanced in a Sanders Carson matchup. I won’t get into them, though.
Who Is Rich?
Looking at the whole plan, it is easier to think about it in terms of somebody who is self-employed, since they, presumably, pay both the employer and employee share. To give Bernie the benefit of the doubt, just as a thought experiment, assume that the health care plan is pretty good, such that you don’t need insurance (I recognize that is a big leap for many). You are getting hit with that 8.4%, but no longer paying for health insurance, so anybody south of $100,000 is feeling pretty good and even at $250,000, it is not that bad. If you live in a high-tax state, the income tax features are not so bad even as you move into the high six figures, but the FICA and the health charge will be very painful. So it looks like “the rich” starts with people making $300 grand or so and it’s not all coming out of the billionaires.
Other Coverage
Tony Nitti has a nice piece that includes a marginal rate table. Tony, being a youngster, seems to be struck with the rates being real high. The Washington Post notes that the 52% over $10 million is Bernie fulfilling a pledge for a top rate over 50%. Ryan Ellis indicates that Bernie will be doubling the death tax. I did not quite follow the math on that, but I’ll have to take a closer look. The tax blogosphere does not seem to really have lit up over this yet.