More About Bernie’s Taxes: Bachelors, Businesses, & Billionaires

Bar plot comparing of the total burden of taxes and healthcare for families and employers as a percentage of employee salary using current rates (gray) or Presidential Candidate Bernie Sanders's proposed tax plans (blue).

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.

Income Percentiles

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.

Healthcare Costs

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.

Findings

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.




The Bachelor
Bar chart comparing the total burden of taxes and healthcare as a percentage of income for single men with current rates (gray) or with Presidential Candidate Bernie Sanders's proposed tax plans (blue).
A comparison of the total burden of taxes and healthcare as a percentage of income for single men with current rates (gray) or with Presidential Candidate Bernie Sanders’s proposed tax plans (blue).

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
Bar chart comparing the total burden of taxes and healthcare as a percentage of income for single mothers with one child using current rates (gray) or with Presidential Candidate Bernie Sanders's proposed tax plans (blue).
A comparison of the total burden of taxes and healthcare as a percentage of income for single mothers with one child using current rates (gray) or Presidential Candidate Bernie Sanders’s proposed tax plans (blue).

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
Bar chart compariing the total burden of taxes and healthcare for businesses as a percentage of employee salary using current rates (gray) or Presidential Candidate Bernie Sanders's proposed tax plans (blue).
A comparison of the total burden of taxes and healthcare for businesses as a percentage of employee salary using current rates (gray) or Presidential Candidate Bernie Sanders’s proposed tax plans (blue).

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?
A bar chart comparing the total burden of taxes and healthcare as a percentage of income for the highest income families using current rates (gray) or Presidential Candidate Bernie Sanders's proposed tax plans (blue).
A comparison of the total burden of taxes and healthcare as a percentage of income for the highest income families using current rates (gray) or Presidential Candidate Bernie Sanders’s proposed tax plans (blue)

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.

Final Answer

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:

  1. Join the campaign
  2. Donate to the campaign
  3. Help Bernie connect with his supporters by phone banking

This content is not supported nor endorsed by Bernie Sanders or his campaign.

18 thoughts on “More About Bernie’s Taxes: Bachelors, Businesses, & Billionaires”

  1. Yeah, here’s what you really need to know: bernie wins, and everyone with the means to do so (including this guy) is moving their capital into mobile real assets and leaving the country. And yes, i already know where I’m planning to go.

    1. That’s fascinating. Where is it that you’re planning to go?

      I met a great guy who is securities trader and is definitely well into the increased taxes under Bernie range, but I don’t think he’s planning on leaving because, when I met him, he was helping to knock on doors to get out the vote for Bernie. Come to think of it, Seth McFarlane, Sarah Silverman, Susan Sarandon, Mark Ruffalo, Killer Mike, Will Ferrell, and Steve Wozniak are all supporting Bernie Sanders as well, so it’s pretty safe to say that not everyone with the means plans on escaping.

      If someone like yourself was really willing to move to save on taxes, why would they be in America today and not already in Somalia? The way I see it, American life is a product that our country offers that is in very high demand, especially among the super wealthy, and we’re currently undervaluing it. The market-inspired solution would be to raise that cost until we start to lose customers in order to find the optimal price.

  2. I’m still curious when I look back at the history of the US taxation since 1945. Regardless of the tax rates for individuals and businesses, tax collections have stayed remarkably consistent at around 17-19% of GDP. Senator Sander’s proposals will need to collect about 29% of GDP to be funded. Given that even when the top rate was 90% the United States never took in more than around 20-21% of GDP, what is the likelihood that these even have a snowball’s chance in hell of passing through Congress? I’d rather hear something more realistic from either side about taxes. FWIW, the Republican proposals are all taking in around 15% of GDP so those won’t work either.

    1. You do not appear to be including current health insurance payments and healthcare costs in your assessment of cost changes. Do you anticipate that the funds to replace the costs will not be collectable?

  3. Thanks. This was fascinating. I appreciated the data on my relevant situation – a single individual with no dependents. It looks like I’d be paying about $1-2k more a year in taxes, but I’d consider that well worth it for the benefits would be gained.

  4. The issue with Bernie’s plan isn’t the tax levels themselves – it’s the unrealistic cost estimate and belief that no sacrifices need to be made for anyone outside of the top few percentages of earners.

    Sanders estimate is that the costs will start at 1.38T annually. Total healthcare costs in 2014 were 3.0T with 30+ million people uninsured.

    You can talk about the proposed tax impact all day, but the tax impact is meaningless when the taxes increase to cover the actual cost of healthcare. This also ignores all of the follow-on effects – reduced competition from small firms as big firms gain the most, social strife (such as that arising in GB) around individual health choices becoming societal in nature, and supply rationing that will reduce the quality and availability of healthcare for a good portion of those who do have insurance.

    1. Reducing U.S. healthcare costs to $1.38T would mean cutting costs per capita to about $4,600. According to the World Bank, that’s still higher than Finland, Ireland, Iceland, New Zealand, Japan, the U.K., and Italy, which all have universal healthcare. I don’t think there’s anything uniquely incompetent about the U.S. that would prevent us from managing our healthcare costs as well as other countries.

  5. Healthcare costs in the U. S. were so high because of emergency room visits and people who don’t get wellness checks and then are forced into emergency with life-threatening illness. The savings to you will be in what you pay for healthcare now, unless you are playing the odds and thinking you will never be injured or get sick, or have a bad tooth (no insurance under current healthcare) or go deaf or blind.

    1. Actually, that’s only a small part of healthcare costs being high. The reason it costs so much is because people aren’t paying their hospital bills. Yes, people go to ER’s and rack up $2,000 for a “non-emergency” visit when they could just as easily have gone to a walk in clinic and only incurred around $200-$300. But then, on top of that ER visit, the person simply doesn’t pay their bill. Even non-profit hospitals have to cover their costs of doing business. When people aren’t their bill, the cost of a service increases the next year to make up for the losses they know they will be incurring. I wish it was finished at this point, but there’s more… ALL healthcare insurance companies, including Medicare and Medicaid, have contractually negotiated special prices for all services. So, where an MRI costs $2,000 for somebody with no insurance, it only costs $1,000 for somebody with Medicare, or $1,500 for somebody with Cigna, or $1,100 for somebody with Blue Cross, etc… But even with coverage, a patient who can’t afford their deductibles, may or may not be paying for their MRI, so the hospital has to eat that cost altogether because even though the insurance company negotiated a special price, the hospital has to bill the amount of the deductible to the patient – the insurance company is not paying it. So, the price is going to increase again next year. In a universal healthcare system, healthcare providers are guaranteed payment for services every single time, so they don’t have to increase the price to make up for losses. Medicare, being the only payer, can almost make up their own pricing because providers are going to be ecstatic about knowing they will get paid – in full – whatever price is set. I have yet to speak with a doctor that is NOT in favor of universal healthcare and I’ve spoken with a lot of doctors because I work in a hospital. I’ve been in billing and I’ve seen the huge amounts of money written off every single day. I’m currently coding and I see, every day, the amount of money spent on patients who come into the Emergency Room for things that could have easily been taken care of at the walk-in clinic, which is managed and staffed by the hospital, so it’s not like they are receiving better care by coming to the ER.

  6. Your calculations are fictitious. Bernie Sanders plan raises taxes on almost every American. Just read the actual plan. You are using funny math.

  7. “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.”

    Unless you live in a state like North Carolina that doesn’t offer Medicaid to adults regardless of their income level. When applying for Obamacare I was told that I wasn’t eligible for health coverage subsidy or Medicaid, but at least I would pay no tax penalty for lacking coverage. Gee, thanks.

  8. Are their any details on how Bernie’s plans would impact the self-employed (or independent contractors) or small businesses? Do they have to pay the 2.2% plus the 6.2% on top of the current self employment taxes they pay now (15.3% for both employer and employee side of payroll/medicare taxes)? This seems like it could be a large increase for someone in that situation. Granted it should decrease healthcare costs, but currently the healthcare costs would be deductible against income tax. It’s not clear whether the increased payroll taxes would be? If IC’s or self employed end up having to pay all of that they’d be looking at 23.7% payroll/healthcare off the top before income taxes. How would that impact effective rates?

    1. Currently, self employment tax (7.65% match portion) is deductible from income so one would assume any Bernie taxes would be too. I wouldn’t be surprised if he didn’t phase it out at some income level though.

  9. I’m also wondering about self-employment taxes. As a single, self-employed person earning enough money for the first time in my life to pay taxes, I was horrified to find I had to pay 2x what someone in same position but paid as an employee was required to pay. And if I take too many deductions, I won’t qualify as having made the requisite quarterly social security contribution, thereby leaving open the possibility that I won’t qualify for Social security at retirement age.
    Despite having the same outrageous student loan burden and doing the same amount of work (and oftentimes more) than my colleagues who work as employees, I end up with much less expendable income than them, though our gross income is about the same.
    I would think that if there is this focus on increasing the middle class, there would be some emphasis on reforming the self-employment tax scheme to encourage people to start new business. If I could make enough on my own, I’d eventually be able to hire others, but can’t do it when I am paying 30% or more in taxes AND my student loans.

  10. I had to laugh at you and Holly. You both looked mortified. To be honest, I was surprised that more people didn't show up late because the invite didn't specify 7pm sharp. You two looked so glamourous though. You were fashionably and stylishly late.On to the collection… I just cannot get excited about it. Like you I don't like the packaging or the idea. It just seems incredibly gimmicky like Hello Kitty or Fafi.Please MAC go back to quality products that you don't need to attach to cartoon characters to sell. Sam. xPixiwoo.blogspot.com

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