Bernie Sanders' "Aggressive" Tax Plan

Date: February 10, 2016

A deep dive into the economic effects of the presidential hopeful's proposal to raise taxes—and what that means for employers.

Bernie Sanders’ tax plan is, “how should I put this…aggressive,” wrote Tony Nitti, a Forbes contributor, in an article titled “Bernie Sanders Releases Tax Plan, Nation’s Rich Recoil in Horror.”

The Vermont senator who’s in the running to be the Democratic nominee for the presidential election also put fear into the hearts of small business owners across the country when he declared at a town hall in Iowa, “Yes, we will raise taxes. Yes, we will.”

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Like Hillary Clinton before him, Sanders recently got the Tax Foundation treatment—the think tank analyzed his tax plan and came up with key findings.

The CliffsNotes version: Sanders would enact a number of policies that would raise payroll taxes and individual income taxes, especially on high-income households.

“Sanders proposes a top rate on individual income of a whopping 52 percent, which would be the highest since 1980, when tax rates topped out at 70 percent under Jimmy Carter,” Nitti wrote.

Tax revenue would be raised by $13.6 trillion over the next decade on a static basis, the Tax Foundation reported. However, the plan would end up collecting $9.8 trillion when accounting for decreased economic output in the long run.

A majority of the revenue raised would come from a new 6.2 percent employer-side payroll tax, a new 2.2 percent broad-based income tax and the elimination of tax expenditures relating to healthcare. Together, these provisions would raise $6.6 trillion over 10 years, or $5.2 trillion after accounting for economic effects.

“This is basically a payroll tax, and most economists agree that the cost of ‘employer-paid’ payroll taxes are passed on entirely to workers in the form of lower wages in the long run,” wrote Dylan Matthews on Vox.

Another significant source of revenue for the Sanders plan has to do with the tax treatment of health insurance. Currently, households are not required to pay taxes on the value of health insurance they receive from their employers, which leads to over $300 billion a year in reduced federal revenue.

However, Sanders would put an end to nearly all privately provided insurance. As a result, employers would cease to compensate their employees with health insurance and would instead increase their wages and salaries by the value of the health insurance plans they used to provide. These higher wages and salaries would then be subject to income and payroll taxes, causing federal tax revenues to increase by $3.6 trillion over the next decade, or $3.3 trillion after accounting for economic effects.

The plan would significantly increase marginal tax rates and the cost of capital, which would lead to 9.5 percent lower GDP over the long term, according to the Tax Foundation’s Taxes and Growth Model. This would translate into an 18.6 percent smaller capital stock and 6 million fewer full-time equivalent jobs. 

On a static basis, the plan would lead to 10.6 percent lower after-tax income for all taxpayers and 17.9 percent lower after-tax income for the top 1 percent. When accounting for reduced GDP, after-tax incomes of all taxpayers would fall by at least 12.8 percent.

Is There an Upshot?

Sanders, for his part, keeps emphasizing that the individual savings achieved under his healthcare plan would offset the costs of the tax increase. He called critics of the strategy “disingenuous,” The Hill reported.

“It’s a very, very, very big tax increase for everyone except those at the bottom,” Roberton Williams, a fellow at the Urban-Brookings Tax Policy Center, told Time, adding, “It’s a big tax increase, but there are all these goodies on the other end. So there will be winners and losers.”

Take Sanders’ plan to provide universal, single-payer healthcare. He says he’d pay for that with a new 2.2 percent income-based “healthcare premium” tax, as well as a 6.2 percent payroll tax paid for by employers. “That adds up to a big increase—but it also means that, in exchange, Americans would save the thousands of dollars they spend every year on premiums, deductibles and other out-of-pocket healthcare costs,” Time reported.

The typical American family of four covered by an employer-sponsored healthcare plan paid $24,671 last year on healthcare costs alone, according to the non-partisan Milliman Medical Index.

A Snowball’s Chance

The tax plan is a tough sell—even amongst Sanders’ own party. Democrats are not on board with the tax hikes he has proposed to pay for his single-payer healthcare proposal, stated House Minority Leader Nancy Pelosi, according to CNN.

“All of these calculations, of course, suppose that Sanders’ tax plan has a snowball’s chance in Congress of actually passing. Which it does not. Even with a Democratic Congress. And even with a President Sanders in 2017,” Time concluded.

*Note: This news coverage does not equate to an endorsement of any candidate by NFIB.

RELATED: What do the other candidates’ tax plans look like? Read NFIB’s coverage:

Donald Trump

Hillary Clinton

Ben Carson

Jeb Bush

Rand Paul

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