Marginal Tax Rates on Income Go Up Across the Board Under Sanders’s Plan

We recently released our analysis of Senator Bernie Sanders’s tax plan. We found that the plan would be a $13.6 trillion 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. increase over the next decade. Compare this to Hillary’s $500 billion tax increase over the same period.

Bernie’s tax plan raises so much revenue by moving away from the typical Democratic Party tax platform of only raising taxes on the rich. Instead, he raises a lot of revenue by taxing the rich a lot more, and everyone else a bit more. Most of his new tax revenue comes from new income and payroll taxes that hit just about everyone with slightly higher taxes in order to fund his Medicare for All plan. As such, marginal tax rate on wage income would go up under the Sanders plan. How much they increase depends on how much income a taxpayer earns.

High-Income Taxpayers

High-income earners would see the largest climb in their marginal tax rates. Under current law, a taxpayer with wage income of 275,000 faces a combined marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. of 36.3 percent. A 33 percent income tax plus the employee-side 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. of 2.35 percent. The employee-side payroll tax includes a 1.45 percent tax for Medicare plus a 0.9 percent Medicare Surtax. This taxpayer also faces the employer-side Medicare payroll tax of 1.45 percent.

Under Sanders’s plan, the marginal rate on a taxpayer with $275,000 in wage income would increase by 50 percent (or 18.2 percentage points) to 54.4 percent. This same taxpayer’s income tax rate would now be 39.2 percent: 37 percent for the normal income tax plus the new 2.2 income-based health insurance tax. This taxpayer’s employee-side payroll tax would increase from 2.35 percent to 8.9 percent. The new rate is composed of the employee-side Medicare payroll tax of 1.45 percent, the Medicare SurtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. of 0.9 percent, the new 0.2 percent family leave payroll tax, and an additional 6.2 percent because Sanders would subject income over $250,000 to the Social Security payroll tax. This taxpayer’s employer-side payroll tax would increase even more to 14.05 percent due to the combined effect of the change in the payroll tax cap, the new 0.2 family leave payroll tax, and the new 6.2 percent employer-side payroll tax to pay for the new health insurance plan.

Marginal Tax Rates of a Taxpayer with $275,000 of Wage Income, Current Law vs. Sanders
	Current Law	Under Sanders
Income Tax	33%	37.00%
Employee-Side Medicare Payroll Tax	1.45%	1.45%
Medicare Surtax	0.9%	0.9%
Employee-Side Family Leave Payroll Tax	0%	0.2%
New Healthcare Income Tax	0%	2.2%
Employee-Side Social Security Payroll Tax	0%	6.2%
Employer-Side Medicare Payroll Tax	1.45%	1.45%
Employer-Side Family-Leave Payroll Tax	0 %	0.2%
Employer-Side Healthcare Payroll Tax	0%	6.2%
Employer-Side Social Security Payroll Tax	0%	6.2%
Combined Marginal Tax Rate	36.27%	54.36%
Note: These rates are not additive. The employer-side payroll tax is borne by the worker in the form of lower wages. This means that it should be added to their tax bill and their compensation.

Middle-Income Taxpayers

Middle- and low-income earners face higher marginal rates due to his new income-based health care tax and his new employer-side payroll tax. Under current law, a single with $50,000 in wage income faces a combined marginal tax rate 37.4 percent. This is comprised of a 25 percent income tax rate, a 7.65 employee-side payroll tax, and a 7.65 percent employer-side payroll tax.[1]

Under Sanders’s plan, the marginal tax rate would increase to 43.1 percent (a 5.6 percentage point difference, or a 15 percent increase in the marginal rate). This same taxpayer would pay the same 25 percent income tax rate plus the new 2.2 percent income tax to fund the healthcare plan. His employee-side payroll tax would increase from 7.65 to 7.9 percent due to the new family-leave payroll tax of 0.2 percent. His employer-side payroll tax would increase to 14.1 percent, which is comprised of the 7.65 percent payroll tax under current law plus the new 6.2 percent payroll tax for the new health insurance program.

Marginal Tax Rates of a Taxpayer with $50,000 of Wage Income, Current Law vs. Sanders
	Current Law	Under Sanders
Income Tax	25%	25.00%
Employee-Side Medicare Payroll Tax	1.45%	1.45%
Employee-Side Family Leave Payroll Tax	0%	0.2%
New Healthcare Income Tax	0%	2.2%
Employee-Side Social Security Payroll Tax	6.2%	6.2%
Employer-Side Medicare Payroll Tax	1.45%	1.45%
Employer-Side Family-Leave Payroll Tax	0%	0.2%
Employer-Side Healthcare Payroll Tax	0%	6.2%
Employer-Side Social Security Payroll Tax	6.2%	6.2%
Combined Marginal Tax Rate	37.44%	43.05%
Note: These rates are not additive. The employer-side payroll tax is borne by the worker in the form of lower wages. This means that it should be added to their tax bill and their compensation.

Taking into account the new payroll and income taxes at all income levels, marginal rates on labor income would increase across the board. Marginal tax rates under Sanders’s plan would range from 19.2 percent on income between $0 and $10,350 for a single and as high as 67.5 percent for income over $10 million.

Marginal Tax Rates of a Taxpayer with Wage Income, Current Law vs. Sanders
Wage Income Above	Total Marginal Tax Wedge
Current Law	Sanders’s Plan	Diff	%Diff
0	14.2%	19.2%	5.0%	35.1%
$10,350	23.5%	29.9%	6.4%	27.2%
$19,625	28.1%	34.3%	6.1%	21.8%
$48,000	37.4%	43.1%	5.6%	15.0%
$101,500	40.2%	45.7%	5.5%	13.6%
$118,000	30.5%	36.8%	6.4%	20.8%
$200,000	31.3%	37.6%	6.3%	20.1%
$200,500	36.3%	42.3%	6.0%	16.5%
$250,000	36.3%	50.8%	14.6%	40.2%
$260,350	36.3%	54.4%	18.1%	49.9%
$423,700	38.2%	54.4%	16.1%	42.1%
$425,400	42.8%	54.4%	11.6%	27.1%
$510,350	42.8%	59.6%	16.8%	39.4%
$2,010,350	42.8%	64.0%	21.2%	49.6%
$10,010,350	42.8%	67.5%	24.7%	57.8%
Notes: Rates indicated are the combined marginal tax rates on labor. Rates include the idividual income tax, employee-side payroll taxes, and employer-side payroll tax.

Remember, these are marginal rates, which are the rates taxpayers face on the next dollar of income. They are not to be confused with average tax rates, which are total tax payments divided by total income, although average rates would also go up under the Sanders tax plan too. These marginal rates do not include the impact of the phase-in and phase-out of different provisions such as the Pease limitation on itemized deductions, the phase-out of the personal exemption, the EITC, or the Child Tax Credit.

It is not a surprise that Sanders’s tax plan raises taxes up and down the income scale. He has an ambitious domestic spending agenda that requires trillions in new revenues over the next decade. One cannot fund that simply by taxing high-income individuals.

Click here to read more on Bernie’s tax plan and other presidential campaign tax proposals.

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