Originally published on Forbes.com.
The Tax Foundation has scored the Bernie Sanders tax plan. As you might expect, it is not a pretty picture. I think that there is something of a flaw in the Tax Foundation’s model in looking at whether the plan is good public policy, but let’s dig into the details a bit first.
The Elements Of The Sanders Tax Plan
There is a 6.2% income-based health care premium paid by employers and a 2.2% income-based premium paid by households. The plan calls for capital gains and dividends to be taxed as ordinary income. In doing its computations, Tax Foundation assumed that the current net investment income tax would be eliminated. There are higher marginal income tax rates starting from $250,000 at 37% with new brackets of 43%, 48% and a 52% rate over $10 million. Tax Foundation assumes that the 2.2% also goes on the higher earners, making the top individual rate 54.2%. Those are the biggest changes in the individual area.
Corporate income tax rates are left alone with revenue coming from cracking down on foreign transactions and eliminating oil and gas incentives. There are significant increase in the estate tax both from lowering the exclusion to $3.5 million and raising rates to as much as 65%. Also there is a financial transaction tax and limits on like-kind exchanges.
Everybody Pays And Some Pay A Lot
The Tax Foundation scores the plan as raising $13.6 trillion over the next decade on a static basis. Scored dynamically it raises $9.8 trillion. Most of the revenue comes from the health care taxes. Tax Foundation estimates that the plan lowers GDP by 9.5% and costs 6 million jobs. After-tax income goes down on average 18.23% on a dynamic basis -14.54% for those in the bottom decile and 24.88% for the top 1%.
FreedomWorks
I got an email from FreedomWorks – Bernie Sanders’ Tax Plan Means Economic Hardship for Americans -. Their senior economic contributor Stephen Moore commented:
“Margaret Thatcher said it best: ‘The problem with socialism is that eventually you run out of other people’s money.’ Under Bernie Sanders’ tax plan, America would be less competitive in the world due to a punitive tax system, consumers would have less money to spend, and more people would be out of work. Sanders may proudly wave the banner of socialism, but his desire to transform America into a European-style socialist country would leave all of us worse off, even after nearly eight years of President Obama’s disastrous economic policies.”
I note that according to its Form 990 that the FreedomWorks Foundation is a 501(c)(3) so I guess there is nothing political about that e-mail.
What Tax Foundation Leaves Out
The problem with the Tax Foundation analysis is that it does not account for the fact that all those businesses and individuals will not be paying for health insurance anymore As I understand the Tax Foundation’s model it is almost as if the over $5 trillion that is raised from the payroll and household tax and the over $3 trillion that is raised because there won’t be deductions and exclusions for health care expenditures is taken from the economy and flushed down the toilet. According to the Tax Foundation taxpayers are behind by $3 trillion because they are not getting health insurance deductions anymore. What is not included in the analysis is the gain from not paying health insurance anymore.
I have not seen this explored elsewhere, but I also wonder if some other forms of insurance such as workman’s comp and auto liability might decrease, since presumably health care costs from injuries will be treated no differently than any other medical care.
There’s A Tax Cut In There
One little detail of the analysis that I found interesting was that the combined effect of replacing the AMT and limits on deductions and phase-outs of exemptions with a 28% cap on the value of deductions actually ends up being a small tax cut overall. I had suspected that, but am glad to see it confirmed.
Other Coverage
Time’s coverage of the scoring points out the benefit side of the equation.
“The savings that Americans would gain by the elimination of private insurance premiums and deductibles are much greater than the public insurance premiums they would pay under Bernie’s plan,” Warren Gunnels, Sanders’ policy director told TIME.
Wall Street Journal Washington Wire leads with negative – Sanders Tax Plan Would Raise $13.6 Trillion, Dwarfing Clinton’s. The story does note
The Tax Foundation, whose board includes former Republican members of Congress and corporate executives, uses a model that ties the economy’s health closely to tax rates on capital.
I think that it is really worth noting that nearly a quarter of the revenue raised comes from eliminating deductions for money that people will not have to spend anymore. Calling that a tax increase seems a bit silly.