How Will The Bernie Sanders Tax Plan Affect You?

Many Democratic supporters of Hillary Clinton are casting Bernie Sanders in the mold of an irresponsible dreamer. One of the recent memes claims that poor and middle class voters  will reject the great-sounding programs that Sanders has proposed because it will add new taxes to everyone; even the poor.

The Tax Foundation has published an analysis of the Bernie Sanders Tax Plan by Alan Cole that is unbecoming an institution that claims to be a nonpartisan economic think tank. This analysis entitled Details and Analysis of Senator Bernie Sanders’s Tax Plan asserts a number of questionable findings. One of those findings is:

On a static basis, the plan would lead to 10.56 percent lower after-tax income for all taxpayers and 17.91 percent lower after-tax income for the top 1 percent. When accounting for reduced GDP, after-tax incomes of all taxpayers would fall by at least 12.84 percent.

Cole’s analysis makes other flawed assertions, but the finding restated above is the primary focus of this blog. Most of the other findings relate to tax consequences to employers, GDP, and the markets, which of course, indirectly affect the rest of us. The affect on incomes directly affects each and everyone of us. It is this flawed finding that will be debunked in the few short paragraphs ahead.

Based on the the Tax Foundations claim, a single person making minimum wage would expect to 10.56% less that the $284.69 s/he would bring home after working a 40 hour week. In other words, our hypothetical worker would lose $30.18 and bring home only $254.51 under a Bernie Sanders Tax Plan. In fact, this worker would still bring home $281.79 each week or just $2.79 less that before the Sanders tax is added. This small  paycheck deduction is all that is required but in exchange,  this worker will no longer have to pay insurance premiums or co-pays to go to the doctor or to buy prescriptions.

So how can this be? What the negative nabobs of negativity aren’t telling you is that a little more than $10,000 is deducted from your earnings as a standard deduction (for a single person with no dependents) before you begin paying taxes on the remaining income. For our hypothetical worker, the additional 2.2% income tax is charged only the $6,594 above the standard deduction. The real tax burden is 4.8%. The loss of income, $2.79 on a take-home pay of $281.79 is actually 1% rather than the 10.56% claimed by these masters of deception. These economists are intelligent people so they must be aware of this fact. Are they intentionally attempting to scare voters away from Bernie’s very reasonable tax plan?

Our hypothetical minimum wage worker was single making minimum wage. But what happens if we scale Bernie’s tax up to a family of 4 with 2 incomes averaging $10.10 per hour for each income earner?  Based on the the Tax Foundations claim,  a 10.56% loss of this family’s $37,250.63 annual take-home pay would be $3,948.57 or $75.93 per week. In other words, according to the Tax Foundation, our theoretical family would bring home only  $640.42 instead of the $716.36 this family currently brings home. That might give the voters in this family pause when considering a Sanders presidency. In fact, under a Bernie Sanders Tax Plan this family would still bring home $714.71 which is only $5.68 per week less than today. $5 a week is not a bad price to pay to eliminate insurance premiums, those pesky $100 co-pays at the emergency room, and those $20 or $30 co-pays at the doctor’s office. Why is the reality so different from the perception painted by the Tax Foundation? Well the magic lies in our progressive tax code. The family of 4 will get $12,600 deductions for the two wage earners filing jointly and another $16,000 for the 4 dependents claimed, one for each spouse and 2 for the children.With $28,600 in deductions, the 2.2% tax increase applies only to the remaining $13,416 adjusted gross income. The real decrease in wages for this family turns out to be .2%, not the 10.56% advertised by the Tax Foundation.

Incidentally, in a recent debate, Sanders claimed that the average family would pay about $500 more per year in tax and get a $5000 a year savings in insurance premiums and co-pays. If we scale our hypothetical family up to the U.S. median income for 2015 which is $53,657, we do indeed arrive at an annual increase of $551.25 or about $10.60 per week for our hypothetical family of 4. On a weekly take-home pay of $889.52, this represents a loss of about 1.2% of family income, not the 10.56% advertised by the Tax Foundation.

And what do we get for this modest change to our tax code? Each part of Bernie’s tax plan is targeted to specific improvements in economy and infrastructure which you can read about on the Bernie Sanders’ Campaign website.

Thank you, Bernie Sanders.