Tax Proposals from the Campaign Trail

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Joseph M. Press, CPA, CFE

As the 2020 Presidential Campaign has gotten underway, there is no shortage of proposed programs being put forth by the candidates along with their plans to finance these programs. We will look at the proposed new and extended taxes to give our readers an idea of the nature of the tax proposals, their scale, and their relation to policies of the past.  

When first contemplating this article, I thought of covering the top 3 Democratic candidates’ proposals. However, in choosing to research Bernie Sanders first, I found more than enough material to fill the article so that other candidates will be covered in future articles. 

This article will not attempt to articulate the various proposed programs nor their efficacy. Further, I will try to describe the tax proposals in a neutral and unbiased manner, with much of the information coming from the candidate’s website.   

Getting Some Scale of the Sanders Proposals

To enhance comparability, many of the proposals are discussed in terms of the cost and revenues raised over a ten year period. I will try to do this in a consistent manner. However, to help start the discussion, I will set forth a couple of statistics to use as a measuring tool.

Current Annual GDP                                         $21.33 trillion

Federal Revenue FYE 9/30/19 (estimated)        $3.436 trillion

Social Security Expansion Act

The Social Security Expansion Act represents an already proposed piece of legislation that would expand Social Security benefits, mostly for lower-income recipients, and would extend Social Security solvency from 2034 to 2071. To pay for this, the Act will raise revenues by applying the Social Security (SS) payroll tax to all earnings above $250,000 and increase the 3.8% tax on investment income already imposed by the Affordable Care Act to 10%. Total revenues raised over ten years are estimated at $1.97 trillion. 

Observation - there will be a “doughnut hole” between whatever the SS wage cap is (currently $132,900) and $250,000 on which there will be no SS taxes imposed. Wealthier wage earners will not receive increased benefits based on the additional taxes imposed, thus weakening the link between taxes paid and benefits received. For historical perspective, the Medicare payroll tax went from a maximum of $23.10 in 1966 to $1,957.50 in 1993, after which no maximum limit is applied. 

Inclusive Prosperity Act

This proposal would tax trades of stocks, bonds, and derivatives based upon the value of the trade as follows:

Stocks             .5%

Bonds              .1%

Derivatives      .005%

Taxpayers with incomes less than $50,000 and married couples with incomes less than $75,000 who incurred this tax will be able to claim a credit on their tax returns.  

It is projected that this tax would raise $2.4 trillion over ten years and would be used to offset costs associated with the proposed “College for All and Cancel All Student Debt.” 

Observation - the U.S. imposed a transfer tax on all sales or transfers of stock from 1914 to 1966. The tax ranged from .2% to .4% during the Great Depression. 

Medicare for All Act (M4A)

The goal of this act is to provide comprehensive health care to everyone in the United States without out-of-pocket expenses. While proponents of the bill argue that overall, the nation’s health care expenditures will decrease under this plan, the burden of paying all health care costs will be shifted to the federal government. The Mercatus Center at George Mason University estimates that M4A would add approximately $32.6 trillion to the federal budget during the first ten years of its implementation. 

The Sanders Campaign lists the following options:

  • 7.5% payroll tax paid by employers. An employer’s first $2 million in payroll would be exempt. 
    • Revenue raised over ten years - $3.9 trillion
  • 4% income-based “premium” paid by households. 
    • Revenue raised over ten years - $3.5 trillion
  • Savings from Health Tax Expenditures. With M4A, all previous deductions and the preference that excludes employer-paid premiums and contributions to cafeteria plans would be eliminated. The medical expense deduction would also be removed. 
    • Revenue raised over ten years - $4.2 trillion
  • Make personal income taxes more progressive by:
    • Up to 52% on income over $10 million. (Note that the rates were raised in a later Sanders proposal to 77% maximum but without an estimate of revenue raised). 
      • Observation - the highest personal tax rate in 1963 was 91%.
    • Taxing capital gains and dividends as ordinary income for households with incomes over $250,000. 
      • Observation - capital gains tax rates have been as high as 35%. Also, at various times, dividends have been exempt from tax and taxed at the individual’s tax rate up to 91%.  
    • Limit tax deductions for households with incomes over $250,000 by limiting the incremental tax value of deduction to 28%. 
    • Revenue raised over ten years - $1.8 trillion
  • Increasing the estate taxes by replacing the current flat 40% on estates over $11 million ($22 million for married couples) with a 45% rate starting at $3.5 million ($7 million for married couples) escalating to a 77% rate for estates over $1 billion. Also, additional revenue is anticipated from closing loopholes and tightening valuation techniques. 
    • Observation - estate tax rates have been as high as 77% as recent as 1976.  
    • Revenues raised over ten years - $2.2 trillion
  • Establish a wealth tax of 1% applied to net worth exceeding $21 million per household. 
    • Observation - the U.S. has never imposed a wealth tax. 
    • Revenue raised over ten years - $1.3 trillion
  • An assortment of smaller proposals that in 10 years would raise $1.25 trillion.

The above analysis shows additional revenues of $18.15 trillion over ten years and an estimated shortfall of $14.45 trillion compared to the cost. There is a growing realization that progressive policies such as M4A cannot be financed by only increasing taxes on the top 1%. Tax increases further down the income scale are now being debated.

The Green New Deal

On August 22, 2019, Candidate Sanders rolled out his Green New Deal plan, with an estimated price tag of $16.3 trillion over ten years. Proposed financing of this program will come from: 

  • Making the fossil fuel industry pay for their pollution through litigation, fees, and taxes, and eliminating federal fossil fuel subsidies.
  • Generating revenue from the wholesale of energy produced by the regional Power Marketing Authorities. Revenues will be collected from 2023-2035, and after 2035 electricity will be virtually free, aside from operations and maintenance costs.
  • Scaling back military spending on maintaining global oil dependence.
  • Collecting new income tax revenue from the 20 million new jobs created by the plan.
  • Reduced need for federal and state safety net spending due to the creation of millions of good-paying, unionized jobs.
  • Making the wealthy and large corporations pay their fair share. 

Because of the recentness of this proposal, details of the financing portion are not yet out. However, the last item appears weak as higher taxes on the wealthy have been previously accounted for, and according to the Joint Committee on Taxation, the total ten-year value of the Tax Cuts and Jobs Act corporate tax rate adjustment is “only” $1.348 trillion.  

While candidate Sanders’ website contains an additional proposal for various programs, this article captures four of the largest, with total new spending over a ten year period of $53 trillion. I am old enough to remember when a billion dollars was a huge amount.