In the time that has passed since my original Just How Much Would Bernie Sanders Tax Me? analysis,the Sanders campaign has experienced a virtual tie in the Iowa Caucuses and a significant win in New Hampshire. This makes an accurate perspective on Senator Sanders’s proposals even more important, as the campaign draws more scrutiny due to its demonstrated ability to win and the proposals become an increasingly real possibility for the American people.
My initial analysis found that 70% of families would save money under Senator Sanders’s plans, but it focused on a narrow perspective: take home pay for a family of four in the bottom 95 percent. There have been many discussions, colorful comments, and requests regarding other family situations and other ways of assessing tax burden, and I have enhanced my R code to be able to address these requests. In this post, I will discuss the impact of Bernie Sanders’s tax plans in the following contexts:
- Take home pay for single men and single moms
- Take home pay for very large income levels
- Tax burden for employers
Concepts and Caveats
Here are a few brief points to consider as you review the charts and results in this post. (or jump ahead to the charts, if you prefer)
Marginal V. Effective Tax
We use a marginal tax rate system for income and several other taxes in the U.S. In a marginal system, your income is broken up into chunks that are each taxed at a different rate. Take income tax for example. For married joint filers, the first $18,450 of taxable income is taxed at 10%, and the next chunk, $18,451 up to $74,900, is taxed at 15%. If your taxable income is $48,450, your top marginal tax rate would be 15%, but your actual tax rate would be lower than that. You’d separate out $18,450 and tax that at 10% ($1,845) and then tax the remaining $30,000 at 15% ($4,500). Your total tax bill would be $6,345 ($18,45 + $4,500), and that amounts to 13.1% of your $48,450 income. This 13.1% figure is called the effective tax rate, the actual tax rate paid when all is said and done.
You don’t care whether one was taxed at 10% and the other was taxed at 15%; you care that there is $2 in your wallet
Tax plan proposals, like Bernie Sanders’s Medicare-for-All plan, list tax brackets and marginal rates because that’s how tax laws are constructed, but it’s primarily only legislators and accountants that care about marginal rates. If you look at two dollar bills in your wallet, you don’t care whether one was taxed at 10% and the other was taxed at 15%; you care that there is $2 in your wallet. It is difficult to determine effective tax rates, especially when dealing with multiple different taxes with different brackets, so many journalists have lazily reported on marginal rates with respect to Bernie’s plan. I believe, however, that it is misleading and irresponsible to report on marginal tax rates in any discussion of tax plans that is intended for the general public, and all of my analyses use effective tax rates.
Discussions of tax rates for different income levels can feel very theoretical, but these policies affect the lives of individual people. In all of my charts, I include a representation of how many people earn the different income levels that are discussed so that tax rates can be understood in the context of who they impact. These estimates are based on the 2014 U.S. Census data, which includes income tables for families, single women, and single men (single in this context means not living with any relatives).
The census data is provided in tables of how many individuals have incomes in various brackets, and I have used simple statistical procedures to smooth these out into the percentiles you’ll see in the legend and the distribution curve you’ll see in the background of each plot (for my fellow data scientists, I used linear interpolation to determine percentiles in-between the brackets and I fit a log-normal distribution to create the curve). The biggest limitation of this data is that the highest income bracket listed is that of all incomes greater than $250,000, and the only the average income for that group is provided. In each chart, you’ll find that average top-bracket income listed along with the percent of people that are included, but it is not possible to provide reliable estimates for percentiles for incomes above that level.
Because of this shift in how we pay for healthcare, any honest analysis needs to include both the increase from new taxes and the savings from no longer paying healthcare premiums and expenses
The main feature of the Medicare-for-All plan is a fundamental shift in the way we pay for healthcare. This plan involves replacing the private health insurance industry with a public, single-payer system. Under this plan, Americans would no longer pay any healthcare premiums (a charge usually deducted from paychecks), and there would be no co-pays or deductibles for covered procedures. Businesses would also no longer have to pay for health plan contributions for their employees. Instead, the Medicare-for-All plan would replace these expenses with a 2.2% tax on taxable income that is deducted from paychecks and a 6.2% payroll tax paid by employers.
Because of this shift in how we pay for healthcare, any honest analysis needs to include both the increase from new taxes and the savings from no longer paying healthcare premiums and expenses. In my analyses, I do this by adding estimates of these healthcare expenses in with tax rates, so both the current tax rates and the rates under Bernie’s plans are presented as the total combined burden of taxes and healthcare expenses. For families and parents, I’ve used the reported average healthcare costs from the 2015 Milliman Medical Index: An annual cost of $6,408 for healthcare premiums, $4,065 in healthcare expenses, and $14,198 in employer contributions. The Milliman report does not include estimates for individuals, so I used the Kaiser Family Foundation’s 2015 Employer Health Benefits Survey average of $1,071 in employee premiums and $5,179 in employer contributions. This survey did not provide an average for out-of-pocket expenses, so I have substituted the average deductible instead ($1,318). This means that healthcare costs may be lower that what is presented for individuals who are low users of healthcare services, and I have separated this out in all charts to allow comparisons with or without significant out-of-pocket expenditures. For individuals or families below 133% of their Federal Poverty Level, enrollment in Medicaid is assumed, healthcare premiums are reduced to $0, and healthcare expenses are estimated at 2.4% of income. Finally Sanders’s Medicare-for-All plan would not provide carte blanche to receive any medical procedure you desire, so one-fifth of current healthcare out of pocket expenses are retained to represent the costs paid for procedures that aren’t medically necessary, as recommended in economist Gerald Friedman’s analysis.
The Scope of These Analyses
The analyses presented here cover only the impact of tax policies and healthcare costs as presented in Sanders’s proposals. These analyses do not attempt to judge whether the programs would be successful, whether the proposed rates would indeed cover program costs, or what the impact to the economy would be. For more information on those topics, please refer to Gerald Friedman’s analysis.
Why Trust Me?
You shouldn’t. I don’t expect anyone to take me on my word for these analysis, and that is why I have publicly shared the sources for every single number in my calculations (any not listed here are in my previous post) and the complete source code for all calculations. I encourage all readers to critically analyze my methods and decide for themselves. You should also know that I am an active volunteer for the Sanders campaign, but the campaign is not involved with and does not provide support for nor endorsement of this content.
To provide some assurance that this is a thorough analysis, here is a list of the factors I’ve included in my calculations: tax deductions (standard deduction, personal exemptions with high income phase-out, and healthcare premiums), Earned Income Tax Credit (with phase-in and phase-out), Child Tax Credit (with phase-out and Additional Child Tax Credit), federal income tax (with brackets by filing status), Social Security tax (with wage base limit), Medicare tax (with additional withholding for incomes over $200K), FICA and FUTA employer-paid payroll taxes (with wage base limits), Sanders’s proposed new income tax brackets, Sanders’s proposed removal of Social Security caps for both employee and employer contributions (starting at$250K income, but with backlog tax for the $118-$250K gap), Sanders’s proposed paid family and medical leave tax, and Sanders’s proposed Medicare-for-All taxes (employee portion applied to taxable income, employer portion applied to full income). Please note that Sanders’s plans include additional changes to taxes for investment income that are not included because these analyses are limited to wage income.
For all analyses of taxes under Sanders’s plans, I have assumed that any tax policies not discussed in the plans will continue as they are currently implemented. Since the campaign has published an accounting of plan costs that is fully balanced by revenues from the existing tax policy proposals, I believe it is reasonable to assume that no other changes are planned or necessary.
For incomes from just above the Medicaid threshold up into the top 10%, Sanders’s plans would yield significant savings. For incomes at higher levels, costs would rise
Now, for the results. In each context, the findings follow a similar theme. For incomes low enough to receive Medicaid, Sanders’s plans have little financial impact. For incomes from just above the Medicaid threshold up into the top 10%, Sanders’s plans would yield significant savings. For incomes at higher levels, costs would rise.
These changes are driven primarily from the switch to a flat rate for healthcare services through private providers to a tax payment based on percentage of income and increased income tax for incomes above $250,000. Under the current system, healthcare costs consume large portions of smaller incomes, nearly 50% in the worst cases, and this often leaves lower income individuals and families spending just as large a portion of their income on taxes and healthcare as the wealthiest. Under Sanders’s plans, the system is more progressive because individuals and families with the lowest incomes pay the least portion of their income into healthcare and taxes, and these portions increase gradually as incomes increase.
Some other interesting findings that cut across all contexts are that the backlog taxes in the Social Security Expansion cause a large jump in tax bills. Crossing the $250,000 threshold adds $8,153 to the total taxes paid as the 6.2% Social Security tax begins to be applied to income, including that in the range between the current $118,500 ceiling and this threshold. Also, total income tax due gets a slight increase under Sanders’s plans even for those well below $250,000, where Sanders’s new tax rates begin. This occurs because healthcare premiums are paid with pre-tax dollars for most people in the current system, so removing the cost of healthcare premiums also means an increase in taxable income.
Reading the Charts
In the charts below, a pair of bars will show the tax rates for the current system and Sanders’s proposals for a variety of income levels. The bars are subdivided to display the contributions of different taxes and expenses, and the total width of the bar portrays the total effective tax rate with healthcare costs included using the percentage scale listed along the bottom of the chart. The net difference between plans in real dollars is also displayed in a floating label at the ends the bars.
If tax credits exceed income taxes, a bar will be offset below the 0% line, but the end of the bar will still indicate the effective tax rate. If a bar appears completely below the 0% line, then the tax credits outweigh all taxes and healthcare expenses combined, resulting in a tax refund (exact refund amounts are not shown, but any change with Sander’s plans is displayed in the floating label).
The dark grey curve in the background provides a rough estimate of what proportion of people in that group earn each income amount, using the same percentage scale on the bottom of the chart. Income percentile levels are also listed on the left side with each income level, where available.
For the median earner with an income of $31,299, the total tax and healthcare burden would decrease from 23% to 19%
For an individual filing singly with no children, the greatest savings under Sanders’s plans ($1,849/year) occurs at an income level of $16,500, which is the 31st percentile for single men. Men earning at the 25th percentile level have a portion of their tax burden offset by the Earned Income Tax Credit and have little current medical expense as they would qualify for Medicaid. For the median earner with an income of $31,299, the total tax and healthcare burden would decrease from 23% to 19%.
The amount saved decreases gradually as incomes increase up to the cross-over point at the 86th percentile, and those with incomes at $87,500 and above would experience increases in costs. The highest income group reported in the census, those earning more than $250,000, has an average income of $432,816 and includes about 1% of single men. This group would see an increase in tax and healthcare burden from 33% to 41%.
All the Single Ladies
This is the largest example of regressivity for individuals in the current system, with single moms at the 56th percentile spending 36% of their $20,000 income on taxes and healthcare, while the top earners pay only 34%
Differences between this chart the one for single men above are driven by three factors: differences in income distribution for single women, tax credits and deductions for a dependent child, and increases in healthcare costs to cover parent and child. The difference in incomes for single women and single men is stark. The median single woman earns $17,787 per year, which is 57% of the median single man’s salary, and the top bracket of single female earners, while similar in average income, covers a much smaller portion of the population: 0.3% for women compared to 1% for men.
The child tax credit results in a net negative income tax for income as high as $38,000, yet the cost of a family healthcare plan consumes the tax credits and more, bringing total burden as higher or higher than the highest income levels. This is the largest example of regressivity for individuals in the current system, with single moms at the 56th percentile spending 36% of their $20,000 income on taxes and healthcare, while the top earners pay only 34%. Under Sander’s proposed plan, the burden on single moms at the 56th percentile would be reduced to slightly below zero, allowing the tax credits to fulfill their intended purpose of assisting low income families, while the contribution for the average income level in the top bracket would be raised to 41%.
It’s Business Time
Businesses would save enough money to add one new employee for every 8 that they have currently
Employers bear massive costs to provide healthcare to their employees. The average employer contribution to a family healthcare plan is over $14,000, which is equivalent to a 21% tax on payroll at the median family income level. Under Sanders’s plans, this cost would be replaced with a flat 6.2% payroll tax, saving money for business on salaries from $33,500 to $229,500, or about 70% of employees. Sanders’s plans would reduce the total income, tax, and healthcare costs for a median income employee from $86,349 to $76,282. That means that businesses would save enough money to add one new employee for every 8 that they have currently at this income level.
In instances where employers are avoiding contributing to healthcare, by paying salaries low enough that employees qualify for Medicaid or limiting hours to stay below the full time threshold, costs to employers would increase by 6.2% with Sanders’s plans. Current payroll taxes also decrease as salaries increase due to ceilings on the amount of income that is taxed for unemployment insurance and social security, but Sanders’s plans would reverse this regressive trend for incomes over $250,000 due to the removal of the Social Security cap.
Who Wants to Be a Billionaire?
An individual who posts an income equivalent to 20 lifetimes worth of work for the median worker would take home only 8 lifetimes worth of earnings instead
This chart shows the impact of Sanders’s plans in the highest tax brackets. Beyond the top census group family income average of $402, 268, the income levels listed are hypothetical as it is not possible to estimate with any accuracy how many individuals or families would be affected. The impact of the new tax brackets in Sanders’s plans is apparent at these income levels, the highest bracket beings at $10M with an income tax rate of 52%. At the $50M level, the effective tax rate approaches the highest marginal rate and is 62% under Sanders’s plans as compared to 42% under current policies.
This highest income would see an increase of nearly $10M in total tax burden. Whether that is appropriate or not is beyond the scope of this analysis, but it is difficult to grasp the scale of numbers this large, so some perspective can be beneficial. At these rates, an individual who, in a single year, posts an income equivalent to 20 lifetimes worth of work for the median worker would take home only 8 lifetimes worth of earnings instead.
Healthcare costs are a large burden to the majority of individuals and businesses, and that burden is especially large for lower income individuals and families, reaching levels of nearly 50% of income in the worst cases. Sanders’s plans would shift that burden from lower income families to wealthier ones, leaving the bottom 90%, or those earning under $250,000, with more money in their pockets in most cases.
If you think this sounds like a better way of doing things, please consider joining the political revolution:
This content is not supported nor endorsed by Bernie Sanders or his campaign.