Bernie Sanders’ Proposed Marginal Income Tax Rates

Don't look now, but Bernie Sanders looks like he'll be the Democratic nominee for the President of the United States. As Bernie's popularity grows so will volatility in the stock market.

Just kidding, Bernie Sanders failed to get nominated again and Joe Biden is now POTUS. At least Joe Biden is looking to raise taxes on households making over $400,000, for all you tax increase lovers.

If Bernie Sanders, a self-proclaimed Democratic Socialist, actually beats Donald Trump in 2020, we should expect the S&P 500 to correct by at least 20%. Bernie has been one of the most vocal candidates against big corporations. And the S&P 500 is made up of the largest 500 corporations in America.

Bernie Sanders' Proposed Marginal Income Tax Rates

If Bernie becomes the Democratic presidential nominee, I give him a 25% chance of beating Trump. Therefore, we shouldn't be too worried about losing tons of money in the stock market just yet.

Besides potentially losing lots of money in the stock market, the other fear is that American workers will have to pay higher income taxes to pay for universal healthcare, free college, and wiping out more than $1.6 trillion in student debt.

I'm not sure whether Bernie can raise taxes high enough to pay for everything, but let's look at what his proposed income tax rates are.

Bernie Sanders' Proposed Income Tax Rates

Believe it or not, I can't find the definitive proposed income tax rates by Bernie Sanders. There are versions from when he ran in 2016 and various versions today.

All we really know is that tax rates are going up for everyone earning more than $29,000 to pay for his Medicare for all plan. $29,000 seems like quite a low hurdle to start paying more taxes, but at least more Americans are pitching in to pay for services.

Sanders said on Stephen Colbert, “Is healthcare free? No, it is not. So what we do is exempt the first $29,000 of a person’s income. You make less $29,000, you pay nothing in taxes. Above that, in a progressive way, with the wealthiest people paying the largest percentage, people do pay more in taxes.

In a recent interview on CBS's “60 Minutes,” Sanders said Medicare for All would cost $30 trillion over 10 years.

Sanders identified nine methods to finance the plan. Together, they would raise around $17.5 trillion over a decade. They include:

  • Creating a 4% income-based premium for employees that exempts the first $29,000 of income for a family of four. This would generate $4 trillion.
  • Enacting a 7.5% income-based premium that employers pay, but that excludes the first $1 million in payroll generated by small businesses. It would raise $5.4 trillion.
  • Eliminating health tax expenditures, which would net $5.2 trillion.
  • Taxing capital gains equally to income, raising $2.5 trillion.
  • Restoring the federal corporate tax rate to 35%, and directing $1 trillion of the revenue towards financing Medicare for All.

Sanders also proposed using some of the funds collected from his wealth and estate tax as well as raising the top marginal income tax rate to 52% on income above $10 million to fund universal healthcare. 

The most helpful website I found that explains how Bernie's tax plan would affect you is The disclaimer says it is not officially affiliate with Bernie Sanders and it was last updated on July 2019.

Given I have a new goal of trying to earn $350,000 a year by 2022 to take care of my family of four in expensive San Francisco, I used this income figure see how much more I would pay under Bernie's plan.

Here's what I got.

According to the website, my annual disposable income would be $15,536 HIGHER with a Sanders tax plan. How could that be given $350,000 is a top 10% income in America?

The answer is because my family of four is paying $2,380 a month in healthcare premiums. I'm guessing that I'm paying $13,024 more a year in taxes under Sanders plan in EXCHANGE for saving $28,560 a year in healthcare (free healthcare).

Whatever Bernie decides are the ultimate income tax rates, the ultimate goal is to have the vast majority of Americans get more healthcare benefits than they do paying more taxes.

Below is a chart that highlights Bernie's proposed marginal income tax rates (not definite) versus the current marginal income tax rates (definite).

Under the proposal below, my income tax doesn't go up because the tax rates are the same up to $500,000 for married couples. And if the tax rates are really the same or similar for up to $500,000 for married couples, then 99% of Americans won't really be paying more in tax.

So how can I pay the same amount of taxes, but save $15,536 a year on healthcare? Something isn't right.

Bernie Sanders' Proposed Marginal Income Tax Rates

Based on the final chart below, we find out the answer.

Although I pay the same amount of income tax, my annual healthcare spending goes to $0 and is replaced with a 4% income-based premium tax on taxable income. In other words, I now pay 4% of my taxable income ($325,600 X 4% = $13,024) to cover our healthcare costs.

I gotta say, paying $1,085 a month versus $2,380 a month in healthcare premiums sure sounds a lot better!

The 4 percent income-based premium tax paid by employees is highlighted on Bernie's official website. Here is his official document explaining how he plans to pay for free healthcare for all.

Here are the various options he proposes to pay for medicare for all etc:

  • Creating a 4 percent income-based premium paid by employees, exempting the first $29,000 in income for a family of four;
  • Imposing a 7.5 percent income-based premium paid by employers, exempting the first $2 million in payroll to protect small businesses;
  • Eliminating health tax expenditures;
  • Making the federal income tax more progressive, including a marginal tax rate of up to 70 percent on those making above $10 million, taxing earned and unearned income at the same rates, and limiting tax deductions for filers in the top tax bracket;
  • Making the estate tax more progressive, including a 77 percent top rate on an inheritance above $1 billion;
  • Establishing a tax on extreme wealth;
  • Closing the “Gingrich-Edwards Loophole”;
  • Imposing a fee on large financial institutions; and
  • Repealing corporate accounting gimmicks.

Bernie's Real Marginal Income Tax Rates

Unfortunately, it makes no sense that marginal income tax rates would stay the same up to $500,000. The BernieTax website is wrong, but it does give some helpful calculations as to what happens to cash flow.

Bernie Sanders' real marginal income tax rates probably look something closer to this.

Bernie Sanders' Proposed Marginal Income Tax Rates

Everybody's marginal income tax rates go up, except for those making up to $9,525. That is below poverty wage, as I've highlighted in a previous post. Then again, the proposed income tax rates don't account for Bernie saying taxes are going up for everybody BUT those making under $29,000 a year.

Under this more likely Bernie Sanders marginal income tax plan, a $350,000 income would have to pay roughly $19,500 more in taxes. That's OK if my $28,560 annual healthcare premium is completed wiped out, as that would increase my disposable annual income by $9,000. But if I'm then taxed a 4% income-based premium equal to $13,024, my disposable income would go down $4,024 a year.

Bottom line, there is no free lunch. Bernie Sanders has probably purposefully not been explicitly clear about his tax plan because he doesn't want people calculating how more in income taxes they will probably have to pay under his plan.

All we know is that individuals making under $29,000 a year are probably not going to have to pay more taxes. We can guess that married couples making under $58,000 will be safe too. We can probably also assume that household income can increase by $5,000 per child and not have to face increased taxes either.

I just don't believe that Bernie Sanders can beat Donald Trump because the stock market is at an all-time high, unemployment is near all-time lows, and the economy is strong overall.

Bernie Sanders' tax plan calls for too many Americans to pitch in. When everybody wants everything for free nowadays, it's hard to see Bernie's plan succeeding.

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