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Economic Analysis: Democratic Candidates’ Tax Proposals on One Page

Posted on Nov. 18, 2019

Some will say it is not enough. But many of our busy readers have no time for perusing the details of long-shot candidates’ quixotic plans. Details are usually all-important in tax, but campaign proposal details — if they even exist — are meaningless because they will melt away in the heat of the legislative process. So we provide here a mere one-page summary of the tax proposals of the five Democratic presidential candidates who were chosen by more than 3 percent of voters, according to poll aggregator Real Clear Politics.

All the hopefuls have President Trump’s signature legislative achievement in their crosshairs. The benefits for big business and the highest-income taxpayers in the Tax Cuts and Jobs Act would be toast if any of them were king.

Frontrunner former Vice President Joe Biden stands out because he alone proposes a business-as-usual Democratic tax agenda, perhaps something along the lines of what would be proposed by — hmmm, let’s see — Barack Obama. For the others, it is unusual business — a sudden leftward shift in the direction of American fiscal policy. The non-Bidens are proposing supercolossal tax hikes. The plans of Sen. Elizabeth Warren, D-Mass., altogether would increase taxes in the aggregate by 61 percent. (Prior analysis: Tax Notes Federal, Nov. 11, 2019, p. 916.) The focus is on the thin slice of the population with thick wallets.

How can we tax the rich? Let us count the ways. Directly, within the framework of the current system, we can increase rates on their income, their payroll, and their estate taxes. The Democrats — including Biden — give special attention to taxing their capital gains. Removing the preferential rate is just the start. Senate Finance Committee ranking member Ron Wyden, D-Ore., has proposed taxing marketable assets annually, an idea that is gaining traction. And more and more folks are talking about ending the centerpiece of tax planning for the wealthy: the tax-free step-up in basis at death.

We can also indirectly tax the affluent by taxing the corporations disproportionately in their ownership. (Yes, we know some of the corporate tax burden falls on labor. But that point is far too subtle for campaigners and their target audiences.) Raising the corporate rate to 28 or 35 percent is just the start. Then there are loopholes to close, which means that some staff people — no people in power really understand this stuff — will have to untangle the international provisions of the TCJA and figure out how to squeeze more dollars out of multinationals.

Finally, there are three entirely new taxes. In order of probability, they are: a carbon tax, a financial transactions tax, and a constitutionally questionable wealth tax. Despite what both the climate-change deniers and hardcore environmentalists say, a carbon tax is excellent, as far as taxes go. The financial transactions tax is more of a money grab than a principled revenue source, and to be effective, that would require multilateral adoption by the governments of major financial centers. The wealth tax is as principled as an income tax, perhaps even more principled, but administrative issues and Article I, section 9, clause 4 of the Constitution are Jersey barriers in its path.

In this forest of mind-blowing plans, perhaps the most intriguing comes from Andrew Yang. Basically, the lawyer-entrepreneur proposes using a VAT to pay for universal basic income. That means a check from the government every month for every U.S. citizen over age 18 — rich or poor, working or not. It’s not as wacky or socialist as it may first appear. Because higher-income citizens pay more than lower-income citizens, the net effect is a progressive tax-transfer system with minimal administrative and compliance hassles. As a mechanism for redistribution, it receives high marks from George W. Bush’s former top economist, Greg Mankiw.

Caution: When assessing political viability, don’t focus only on the onerous tax aspects of the candidates’ proposals. The money wrung from taxpayers won’t just be thrown into the sea. Those trillions would be spent on college tuition, teachers’ salaries, child care, clean energy, infrastructure, and — most important of all — healthcare. If these ideas prove as popular as polls indicate, the associated revenue raisers might not be as far-fetched as tax people think. But it will take a lot more than favorable polling to cross the finish line on Capitol Hill.

None of the Democrats’ proposals, including Biden’s, has even the slightest chance of passing unless the Senate has 50 Democrats (and of course, if the House and the White House are under Democratic control). The odds are stacked against that in the foreseeable future. But after that short period, who can really say?

Highlights of Democratic Candidate Tax Proposals (as of Nov. 12)

 

Joe Biden

Elizabeth Warren

Bernie Sanders

Pete Buttigieg

Kamala Harris

Polling average (Nov. 12)

28.3%

20.6%

17.6%

7%

4.5%

Raise top individual rate (rate excludes 3.8% net investment income tax)

39.6%

39.6%

70%

50%

Like Sanders

Corporate rate

28%

35%

TCJA repeal

TCJA repeal

TCJA repeal

Increase tax on multinationals

TCJA repeal

Worldwide taxation/sales factor apportionment

Worldwide taxation

Sales factor apportionment

Worldwide taxation

Estate tax

TCJA repeal

TCJA repeal

Reduce thresholds/top rate 77%

TCJA repeal

Like Sanders

Top capital gain rate

39.6% (over $1 million)

39.6%

70% (over $250,000)

 

Like Sanders

Mark-to-market

 

Yes

 

 

 

No step-up in basis at death

Yes

 

 

 

 

Wealth tax

 

2% ($50 million), 6% ($1 billion)

1% ($32 million), 8% ($10 billion)

Yes

 

Carbon/fossil fuel tax

 

Yes

Yes

Yes

Yes

Financial transactions tax

 

Yes

Yes

Yes

Yes

Payroll tax (paid leave)

 

0.2%

0.2%

 

0.2%

Payroll tax increase (Social Security)

Yes

14.8% (investment income also)

12.4% (over $250,000)

 

12.4% (over $250,000)

Payroll (Medicare-for-All, employer)

 

Average of prior premiums

7.5% ($2 million exemption)

 

7.5% ($2 million exemption)

Payroll (Medicare-for-All, employee)

 

 

4% ($29,000 exemption)

 

4% ($100,000 exemption

Repeal fossil fuel benefits

Yes

Yes

Yes

Yes

 

Expand earned income and child tax credits

 

Yes

Yes

Yes

Yes

Other interesting stuff: Corporate tax hike, if pay is disproportionate (Sen. Bernie Sanders, I-Vt.). Additional 7 percent tax on worldwide accounting profit (Warren). Increased IRS enforcement (Sen. Amy Klobuchar, D-Minn.; Warren). VAT for universal basic income (Andrew Yang). Renter tax credit (Sen. Kamala D. Harris, D-Calif.; Sen. Cory A. Booker, D-N.J.; Rep. Tulsi Gabbard, D-Hawaii; and former Housing and Urban Development Secretary Julian Castro). Fee on large financial institutions (Warren). Expanded ACA tax credits (Biden). Inheritance tax (Castro). Polluter tax (Booker). Tax credits for lead safety (Castro). Carried interest (Klobuchar). Opioid fee (Klobuchar). Cash in account at birth, “baby bonds” (Booker). Renewable energy credits (South Bend, Indiana, Mayor Buttigieg; Gabbard). Tax on gun manufacturers (Warren). Tax on excessive lobbying (Warren). Sanders favors ending the capital gains break for those with household income above $250,000. Warren has proposed taxing capital gains at the same rate as ordinary income and requiring those with capital gains to pay annually, not just when they sell their assets.

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