Originally published on Forbes.com.
The Tax Policy Center has now issued its reports analyzing the tax proposals of both Hillary Clinton and Bernie Sanders. There is a lot of material there. The practical takeaway is that if you have been contemplating estate tax savings moves, but procrastinating, it would be wise to stop procrastinating, but I’m not going to get into that here. What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.
Medicare For All Complicates The Picture
Bernie and Hillary both want the rich to pay more. The most dramatic difference is how much harder Bernie wants to hit the rich and perhaps, of greater political significance who the rich are. The analysis shows that unlike Hillary’s plan Bernie’s plan raises taxes on just about everybody, but I think there is a real apples and oranges problem going on there.
Over half of the $15.3 trillion (over ten years) that the Sanders plan raises is accounted for by the 6.4% payroll tax and the repeal of tax exclusions for health care related expenditures. This will be more than offset for people with lower incomes by the fact that they won’t be paying for health insurance or copays anymore.
Tough On The 1%
What you want to look at to get a really good contrast of who is affected by the plans are the bar graphs showing change in after tax income on Page 11 of the Clinton analysis and Page 23 of the Sanders analysis. They both hit the top 0.1% and 1%. Clinton’s plan would lower the after-tax income of the top 0.1% (Income of about $3.8 million and above) by 7.8%. The Sanders plan lowers their after-tax income by a whopping 41.2%. The top 1% (Income from about $730,000 to $3.8 million) have their after tax income go down by 5.2% under the Clinton plan and 31.9% under the Sanders plan. That brings us to the next big difference.
Is $500,000 Per Year Rich?
The rest of the top quintile (Income from about $140,000 to $730,000) is pretty well left alone by the Clinton plan, but will experience a drop in after tax income of over 10% under the Sanders plan. Don’t forget the medicare for all though. The ninth decile (Income from $140,000 to about $210,000) has a 10.3 % drop in after tax income, but the health care savings would put that group close to even depending on what they were paying for insurance. I realize it gets pretty complicate with a lot of different scenarios, but the very dramatic difference is what you might call the other 4% (95%-99%) (Roughly $300,000 to $730,000). The Clinton plan barely touches them, but the Sanders plan lowers their after tax income by 12.3% and clearly health care savings will not make up for that big a hit.
I think that we see with the other 4% the big difference between Sanders and Clinton. To the Sanders crowd, people making $500,000 per year are rich. To Clinton they are just plain folks. I am sure there are other, likely more important factors at work, but I believe that you can see the difference if you take a look at this New York Times map of the Massachusetts primary results.
Mapping The Populists
You can read in posts like this that in Massachusetts Sanders carried “the western part of the state”. Talk about being parochial. On the NYT map, it is green for Sanders (perhaps in honor of Jane) and blue for Clinton. The map showing the 351 cities and towns is mostly green with a scatter of blue here and there and a good sized blue wedge that starts broad around Boston and narrows till it ends in Worcester 46.6 miles to the west of Boston.
That first of December covered with snow Turnpike from Stockbridge to Boston immortalized by James Taylor will take you 130 miles. Geographically speaking, Bernie won almost all of the western part of the state and most of the eastern part of the state. Ironically Hillary beat Bernie in Stockbridge 319 to 305, so not all of western Mass is feeling the Bern.
You can really have a lot of fun with the map if you combine it with a list of towns ranked by median household income. You have to go to spot 16 on the median income list – Wilmington – before you get to a town that went to Bernie. What you see on the map is that Hillary got some urban areas, which presumably have well functioning Democratic machines and the portion of the state that benefits from the economic impact of high tech, biotech, financial services and higher education.
My friend Jonathan Schwartz runs two not for profits – Interlock Media in Cambridge (53.9% for Clinton) and Greenworks in Orange (66.9% for Sanders). When I went over the map with him he called it a chasm of class and entitlement explaining the relative appeal of the two candidates in the various towns. (Full disclosure the videos on my youtube channel were produced by Interlock Media.)
The Republican map drives home the point. The red for Trump is overwhelming, but the small number of gray towns that went for Kasich are almost entirely a subset of towns that went for Clinton.
The Massachusetts primary map probably reflects deep populist alienation from the power in Boston. People will still refer to the fact that in the nineteen thirties, four entire towns- Dana, Enfield, Greenwich and Prescott – were disincoporated to accomodate the water needs of metropolitan Boston. And then there is Route 202, which as it goes through towns like Belchertown, Pelham and Shutesbury is called Daniel Shays Highway, honoring the rebellion by farmers against the more elite rebels in Boston.
How Might People React?
In a previous post, I noted that Bernie is probably harder on millionaires than billionaires at least while the billionaires are alive and I think the Tax Policy Center Analysis drives the point home. The top corporate rate remains untouched at 35%, so if the Sanders plan or something like it were to go into effect, we would see a renaissance of C corporations that went out of favor after the Tax Reform Act of 1986. C corporations will be the way to accumulate wealth, although it will be challenging to figure out how to spend it.
I doubt very much that there is any monied interest supporting Sanders, but if there were one, it would be the life insurance industry. His tax plan does not address the inside buildup of life insurance value or its income tax free payment at time of death and the level of estate tax he is proposing will create severe liquidity strains. And I said I wasn’t going to get into planning. Just can’t help myself.
Simplicity Not On The Democratic Agenda
Whatever else the estate tax and progressive income tax might be, they are something of a white collar jobs program. I’m not quite sure which of the plans makes more work for guys like me. Clinton has some interesting wrinkles like multiple holding periods and a kind of extra AMT with her version of the Buffet rule. At least neither one of them will be done on a postcard like Ted Cruz promises.