As an avowed socialist, it is to be expected that Bernie Sanders’ economic policies would be a radical divergence from current policies. While Clinton’s proposals target the top wage earners, her increases are incremental and are more like tweaks to the current tax code. In comparison, Sanders’ policies would be a revolution for American economic and tax policies. According to the nonpartisan Tax Policy Center, Sanders’ plan could be expected to bring in government revenue and may or may not cause economic growth.
Taxing the Rich
Like Hillary Clinton, Sanders is targeting the right with his new taxes. He would create a 2.2 percent health care premium tax on American households, a 0.2 percent payroll tax to fund paid family leave and a 6.2 percent payroll tax to fund health care. There would be four tiers to the income tax brackets instead of four, and the top tier would be for households that earn more than $250,000 per year. In order, these tiers would be taxed at 37, 43, 48 and 52 percent. Additionally, the alternative minimum tax and caps on payroll taxes for top earners would be removed.
On average, the top 1 percent of taxpayers would have to pay an additional $525,000, or 34 percent, of their after-tax income. The top 0.1 percent would pay $3.1 million, or 45 percent, more. For middle-income households, taxes would increase by $4,700, or 10 percent of their after-tax earnings. The lowest wage earners would pay an extra $165, or 1.3 percent.
While the tax increase would be startlingly high, an argument can be made in favor of them. The majority of the tax increase is funding programs like a single-payer health care system. American citizens and their employers are already paying for health insurance costs and premiums, so the higher taxes would just be transferring the payments to a current insurer to the government. While the Citizens for Tax Justice found that this transfer of payments would basically be a neutral cost, other economists are not convinced.
Part of the assumption in this tax plan is that health care costs will decrease. Medicare, which is government-funded for retirees, costs less than typical insurance companies. According to Bernie Sanders, switching to a single-payer system would mean that health care costs would decline and save the government $6.3 trillion over a decade. A researcher at Emory University, Kenneth Thorpe, disagrees. He believes that the plan would be underfunded by $1.1 trillion per year. To make up the difference, even higher taxes would be required.
Wall Street, the Rich and Bernie Sanders
Altogether, the many tax increases on households that make more than $250,000 would be significant. A household that earned more than $10,000,000 annually would end up having a tax rate of 67 percent. While this is significantly higher than current taxes, it is not without precedent. In the 1970s, the top tax rate totaled 70 percent when all taxes were accounted for.
As a part of his platform, Sanders is targeting corporations that dodge taxes by moving their operations offshore. Every year, the United States loses about $100 billion in tax revenue through offshore corporations. A bill previously introduced by Sanders to the Senate, the Corporate Tax Dodging Prevention Act, sought to raise $580 billion in the next ten years to eliminate the abuse of offshore tax havens. Bernie also wants to create a Robin Hood tax on Wall Street speculators. At the lowest level, he advocates wants a 0.03 percent tax on any speculative investments. Sanders wants to break up any large financial institutions to prevent a too-big-to-fail scenario from happening a year. At the same time, he plans on adopting policies to reduce Wall Street speculation and encourage job creation. According to the Joint Committee on Taxation, these measures would reduce the deficit by $352 billion over the next decade.
In reality, these measures may have a negative effect on the economy. While University of Massachusetts Amherst economics professor, Gerald Friedman, says that median income would advance by $22,000 and unemployment would fall to 3.8 percent, other economists are not convinced. Other economists believe the forecasts are overly optimistic, and the Committee for a Responsible Federal Budget reported that Sanders’ health care plan would be $3 trillion short of the funding it needs. The overall economy may decline due to the taxes on the rich, although the economic policies would most likely benefit middle-income and low-income households overall.