At one point during last night’s Democratic debate, Hillary Clinton argued that Bernie Sanders has overestimated the benefits and underestimated the costs of his Medicare-for-all plan on the average American household. Clinton said:
CLINTON: Last week in a CNN town hall, the Senator told a questioner that the questioner would spend about $500 dollars in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es to get about $5,000 dollars in healthcare. Every progressive economist who has analyzed that says that the numbers don’t add up…
Sanders responded by reiterating his claim that the typical American family would pay only $500 more in taxes as a result of his plan:
SANDERS: What I said, and let me repeat it, I don’t know what economists Secretary Clinton is talking to, but what I have said, and let me repeat it, that yes, the middle — the family right in the middle of the economy would pay $500 dollars more in taxes, and get a reduction in their healthcare costs of $5,000 dollars.
Is Sanders’s claim about taxes correct? Would “the family right in the middle of the economy” pay only $500 more in taxes under his tax plan?
To answer this question, we first need to define what sort of family we’re talking about. After all, there are lots of different families “in the middle of the economy”: married and single; with children and without children; wage-earners and investors. For the purposes of this analysis, we’ll assume the household in question
- Makes $36,841 a year. This is the median adjusted gross income in 2013, according to the latest federal income tax data.
- Earns 80.0 percent of its income through salaries and wages. This is the average share of income that comes from salaries and wages for households with incomes between $30,000 and $40,000.
- Takes the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. . This is the case for 80.1 percent of households making between $30,000 and $40,000.
- Claims a standard deduction of $8,468 and $7,765 in personal exemptions. These are the average standard deduction and personal exemptions claimed by households making between $30,000 and $40,000.
The Sanders tax plan includes two new taxes that would be paid directly by a household making $36,841 a year. The first is a 2.2 percent income tax, levied on a household’s taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. (adjusted gross income minus deductions and exemptions). The second is a 0.2 percent payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. , levied on all wages and salaries earned by a household. Using our assumptions above, we can calculate how much additional taxes would be paid directly by a household “in the middle of the economy”:
- The 2.2 percent income tax would raise taxes on the household by $453.38. We arrive at this figure by calculating the household’s taxable income ($36,841 – $8,468 – $7,765) and multiplying the result ($20,608) by 2.2 percent.
- The 0.2 percent payroll tax would raise taxes on the household by $58.95. We arrive at this figure by calculating the household’s salaries and wages ($36,841 * 0.800) and multiplying the result ($29,473) by 0.2 percent.
Overall, the Sanders plan would raise taxes paid directly by a household in the middle of the economy by $512.33. This figure is fairly close to the $500 figure that Sanders cited during the debate.
However, under the Sanders tax plan, households in the middle of the economy would also be subject to two new indirect taxes: a 6.2 percent payroll tax paid by employers (for healthcare) and a 0.2 percent payroll tax paid by employers (for family leave). Virtually all economists agree that, even though payroll taxes are remitted to the government by employers, the burden of the payroll tax is born entirely by wage earners. While I don’t want to delve too deeply into semantics, it would be reasonable for the public to conclude that households in the middle of the economy would also pay two new payroll taxes under the Sanders plan.
To calculate the additional tax burden resulting from Sanders’s new payroll taxes, we first need to estimate how much the household’s employers will decrease wages in response to the new taxes. If the employers currently pay the household $29,473 in wages and salaries, a 6.4 percent employer-side payroll tax will cause them to decrease wages paid to $27,700, in order to keep payroll expenses constant. The new wages and salaries of $27,700 will then be subject to a 6.4 percent tax rate, leading to $1,772.81 in additional taxes on the household.
To sum up, the Sanders tax plan would raise taxes on a typical household in the middle of the economy by $2285.14. It would increase taxes paid directly by the household by $512.33 and taxes indirectly paid by the household by $1772.81.
 In every Tax Foundation analysis of presidential tax plans, we have maintained that employer-side payroll taxes are paid by employees. For instance, our analysis of Senator Cruz’s tax plan treats the 16 percent business transfer tax as a tax paid partially by employees.
 Because the new payroll taxes would cause the household’s wages and salaries to decrease, they would also lead to a lower income tax burden on the household. However, the healthcare-related provisions of the Sanders plan would likely cause the household’s wages and salaries to increase, counteracting this effect. For simplicity, I’ve left out both income tax interaction effects from this analysis.