Comparing Ordinary Income Tax Rate Proposals by 2020 Presidential Candidates

November 20, 2019

Tonight’s Democratic Debate in Atlanta will see the remaining 10 candidates argue that they are the best choice as their party’s nominee in the 2020 presidential election. The candidates currently in the top 4 polling positions—former Vice President Joe Biden, Senators Elizabeth Warren (MA) and Bernie Sanders (I-VT), and South Bend Mayor Pete Buttigieg—have all proposed sweeping changes to the tax code, especially as it was reshaped by the 2017 Tax Cuts and Jobs Act (TCJA).

The majority of Democratic presidential candidate proposals have focused on taxing high-income taxpayers  on both accrued wealth and income. Additionally, many candidates have suggested a partial or complete repeal of the TCJA, which broadened tax brackets and slightly lowered individual income tax rates with the exception of the lowest tax bracket.

Here is where the top four candidates stand on taxing ordinary income:

Former Vice President Joe Biden

While precise details need to be clarified, Biden has suggested a partial or total repeal of the Tax Cuts and Jobs Act and returning tax rates on ordinary income to their levels prior to the TCJA. If the entire TCJA was repealed, Biden’s plan would raise taxes on all income groups relative to the TCJA, except for the 10 percent bracket.

Income TCJA Rate Biden Rate
$0-$9,525 10% 10%
$9,526-38,700 12% 15%
$38,701-$82,500 22% 25%
$82,501-$157,500 24% 28%
$157,501-$200,000 32% 33%
$200,001-$500,000 35% 35%
>$500,000 37% 39.6%

Biden has also proposed reversing the TCJA for wealthy Americans by restoring the 39.6 percent top marginal tax rate, up from 37 percent under current law.

Senator Elizabeth Warren

Despite the plethora of proposals increasing taxes on the wealthiest Americans, Senator Warren has yet to take a position on the top ordinary income rate or any other rates. However, she has argued that the TCJA’s cuts on ordinary income for the wealthiest Americans should be reversed. This plan resembles Biden’s proposal, but more details are needed on how Warren would reverse the TCJA’s cuts.

Senator Bernie Sanders

Senator Sanders would maintain the lower five brackets (10 percent-32 percent) and brackets changed by the TCJA but would raise the 35 percent bracket to 40 percent, along with three more rates of 45 percent, 50 percent, and 52 percent on incomes over $10 million. Sanders has also proposed a 4 percent “income-premium” on income above $29,000.

Income TCJA Rate Sanders Rate (without income premium factored in)
$0-$9,525 10% 10%
$9,526-38,700 12% 12%
$38,701-$82,500 22% 22%
$82,501-$157,500 24% 24%
$157,501-$200,000 32% 32%
$200,001-$250,000 35% 35%
$250,001-$500,000 35% 40%
$500,001-$2,000,000 37% 45%
$2,00,001-$10,00,000 37% 50%
>$10,000,001 37% 52%

Mayor Pete Buttigieg 

Mayor Buttigieg has yet to outline his position on ordinary income rates. However, he has argued that policymakers should consider a higher marginal tax rate for top income earners.

Rate Expiration vs. Repeal

The income rates reduced by the TCJA will expire in 2025 because of the way the legislation was passed (budget reconciliation). Instead of letting these rate reductions expire in 2025, many Democratic candidates would like to have the law expire early in order to fund various proposals in other areas such as health care or education. However, letting the TCJA expire early would not raise significant revenue relative to current law and would not be a stable long-term revenue source.

Conclusion

The top four Democratic candidates have argued that there should be higher tax rates on ordinary income. As the campaign continues, more details will likely emerge about how each would tax ordinary income. Candidates have also proposed other tax plans affecting payroll taxes, capital gains taxes, and taxes on wealth, the subjects of a future blog post.

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A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

A 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.

The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by $1.47 trillion over 10 years before accounting for economic growth.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.

A capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment.

The 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.