Thursday, April 14, 2016

Who Is Going To Get Berned?

Who is going to be "berned" if Bernie Sanders becomes President?

You can see by the Democratic primary election results that there are a lot of people enamored with the 74 year old Socialist. (He will be 75 years old on Election Day in November.)

His proposals are a liberal socialist nirvana. Medicare for all. Free public university tuition. A 100% clean energy infrastructure. Expanded Social Security benefits. And the list goes on and on.

How is it going to be paid for?

The non-partisan Tax Policy Center did an analysis of the cost of Bernie's tax proposals recently. If you think you already are paying too much in taxes, you might gain some new perspective when you see what Bernie has in mind for you.

In total, Sanders is looking at tax increases of over $16 trillion over the next 10 years. That averages about $1.6 trillion per year.

Let's put that in context, the federal government will collect about $1.5 trillion in individual income tax this year. Bernie's plan proposes to raise more than that amount of revenue in additional taxes each year to pay for his socialist ideas.

It is effectively placing an additional burden the size of the individual income tax on the entire economy. And a fair amount of the amount is raised on those individuals who provide the capital and provide the jobs in this economy.

He talks about taxing billionaires and Wall Street barons. However, the reality is that everyone would be "berned" by Bernie to some degree. A few will be singed. Most in the middle class will be torched. Those that produce the most wealth (and jobs) will be immolated.

Let's look at the numbers.

For those in the bottom quintile of household income (below $23,000), the average taxpayer will pay $165 more per year and their after-tax income will be reduced by 1.3%. Singed.

For those in the middle quintile (the heart of the middle class (household income between $45,000 and $81,000) the average taxpayer will pay $4,692 more per year and their after-tax income will be reduced by 8.5%. Torched.

For those in the top quintile ($142,601 and above), the average taxpayer will pay $44,759 more per year and their after-tax income will be reduced by 17.2% per year. Immolated.

Here is the Tax Policy Center chart summarizing the effects. The Addendum data breaks down the specific effects on the top quintile groups. The top 1% is not just immolated, they are incinerated. The top 1% ($730,000) would see their after-tax income reduced by 33.5%.

How is all of this accomplished?

Let's look at some of the specific tax proposals of Sanders that could have a direct effect on individual taxpayers. Of course, in addition to this list there are also a number of business tax increases which total over $1 trillion between 2016-2026.

  • A 2.2% income tax surcharge would be levied on all taxable income. 
  • Increasing tax surcharges would also be levied on income over $200,000. Marginal rates would range from 39.2% to 54.2%.
  • Repeal lower dividend and capital gain tax rates. All of this income would be taxed as ordinary income along with the surcharge.
  • The surtax on net investment income (as a result of Obamacare) would be increased from 3.8% to 10%.
  • Repeal the deduction of all health care expenses as well as the exclusion from income for employer-paid health insurance. Repeal deductions for health savings accounts.
  • Gains on gifts and inherited property would be taxed except for a $250,000 lifetime exclusion.
  • A new 6.2% payroll tax would be levied on all employers to pay for his health care proposal.
  • Social Security tax would be collected on all earnings above $250,000.
  • All employee and employers would pay a new 0.2% payroll tax (on the current Social Security wage base) to pay for universal Family Medical Leave.
  • Reduce the estate tax exemption from $5 million to $3.5 million and increase the death tax rates substantially.
  • Sharply limit the annual exclusion for gift tax (currently $14,000).
  • Enact a new financial transaction tax (FTT) with rates of 0.500 percent on stock trades, 0.100 percent on bonds, and 0.005 percent on derivatives. (Raises a projected $600 billion over the next 10 years)
  • Enact a new tax on “carbon polluting substances,” starting at $15 per ton of carbon dioxide or of carbon dioxide–equivalent content, phasing up to $73 per ton in 2035 and then rising by 5 percent plus the inflation rate in subsequent years. (Raises a projected $900 billion over the next 10 years.)

You can see the full estimated effect of the Sanders Tax Plan on tax receipts in this chart from the Tax Policy Center. (click on chart to enlarge).

The total increase of all his tax increases is a staggering 7.5% of GDP.  To put that in context, total revenues of the federal government in 2015 were 17.7% of GDP. This means that Sanders is proposing to increase the total federal tax burden by almost 50% over what we are accustomed to.

You might think you got burned with the amount of taxes you paid this year.

I dare say most voters don't know what "berned" is.

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