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

February 1, 2016

We recently released our analysis of Senator Bernie Sanders’s tax plan. We found that the plan would be a $13.6 trillion tax 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 rate of 36.3 percent. A 33 percent income tax plus the employee-side payroll tax 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 Surtax 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.



[1] These rates are not additive. The employer-side payroll tax is assumed born by the work. This means that it should be added to their tax bill and their compensation. The formula for the rate is (25%+7.65%+7.65%)/(1+7.65%) = 37.4%


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