Subject: Sanders
From: Dana <[email-masked]>
To: Mike Pyle <[email-masked]>
Cc: Mike Schmidt <[email-masked]>
Date: Wed, 20 Jan 2016 19:15:37 -0500

Mike and Co. --

We've had a couple of news cycles since Sen. Sanders released the details of his 
health care and tax plan.  One surprise is the sheer scale of the proposal -- it calls for $14 trillion in new taxes and spending in the next decade.  

The plan's size might be obscuring two other big but unremarked upon surprises: most of the new taxes Sanders proposes to pay for his plan are regressive and the tax increases called for are all on individuals, none on corporations.  Details below.

Best,

Dana
 
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The Proposal 
 
In his recently unveiled health care plan, Sen. Sanders proposes a single-payer health care system to replace the Affordable Care Act.  It would be funded by major changes to the individual tax code, featuring a top rate on income of 52 percent for those earning over $10 million.  The rate on those earning $250,000 would increase from 33 to 37 percent; those earning $500,000 would see their top rates go from 39.6 to 43 percent. 

The plan does away with the preferential treatment long afforded capital gains and dividends, meaning they would be taxed at the same rates as ordinary income for taxpayers earning over $250,000.  Under current law, the top rate on such income is 23.8 percent; a taxpayer who sells a business for $5 million of gain would pay $1.19 million in federal tax under current law, but would pay $2.4 million in federal tax under the plan (a rate of 48 percent).

The plan would also limit the benefit of all itemized deductions to a 28 percent rate, meaning a taxpayer who earned $500,000, and was thus in Sanders’ 43 percent bracket would effectively pay a 15 percent tax on deductions such as mortgage interest, state and local taxes, and charitable contributions.
 
New and Rising Taxes

Sen. Sanders proposes a broad range of tax increases would be the largest ever enacted to fund his healthcare initiative over the next decade. The multifaceted plan includes the following major provisions:

•  Payroll Tax -- a 6.2 percent payroll tax, which the Sanders campaign calls an “income-based health care premium paid by employers.”  Revenue: $630 billion per year. 
 
•  "Income Tax Premium" -- a 2.2 percent income tax premium, spread across all income tax brackets.  Revenue: $210 billion per year.

 •  New Brackets -- Raised tax rates on the income above $250,000 via new tax brackets.  These income taxes would be the highest since the beginning of Reagan’s first term.  Revenue: $110 billion per year.
1. 37 percent on income between $250,000 and $500,000. 
2. 43 percent on income between $500,000 and $2 million. 
3. 48 percent on income between $2 million and $10 million. 
4. 52 percent on income above $10 million.
 
•  Capital Gains --  Taxing capital gains and dividends as regular income.  Revenue: $91 billion per year.

•  Limiting tax deductions – The Senator seems to be proposing a hard limit on tax deductions for earners over $250,000; more information is necessary regarding specifically how this will occur.  Revenue: $15 billion per year

•  Estate Tax -- raises estate tax rates and lowering the estate tax limit to $3.5 million.  (NB:  The Senator is expected to propose a bracket system for estate taxes based on size, but has not described those brackets).  Revenue: $21 billion per year.
 
The remaining revenue is said to come from the projected $310 billion per year in savings from health-care related tax credits and exemptions.  A number of commenters, including health care experts, have said that this estimate is exceedingly optimistic.
 
Paradox of the Plan:  Oddly Regressive
 
The massive bill for the Sanders health care plan is twice the size of the defense budget, it is larger than all discretionary spending, and it is meant paid for by the unprecedented tax increases outlined above.  They amount to $1.38 trillion annually in new taxes.   A $1.4 trillion tax hike on a $4 trillion base is tremendous.  It would easily be the largest tax increase in history, to pay for healthcare, which was recently overhauled by a Democratic president.  
 
So where does all that tax money come from?   All of it comes from individuals --there is no mention of corporations paying anybody.  Close to half of it comes from a 6.2 percent addition to the payroll tax on employers called an “income-based health care premium” (which would likely be passed on to workers).  The impact on hiring aside, a payroll tax is a regressive tax.  In effect, the new $60 billion tax is a transfer of the tax burden from wealthy to middle-class taxpayers.  
 
Sen. Sanders plan adds a 2.2 percent income-based tax on most households that would cost taxpayers $210 billion a year -- another levy, it appears from the proposal, to be regressive, landing squarely on wage-earners rather than employers.  
 
In exchange for tax hikes, the government would finance generous health care coverage without deductibles and copays. He argues that a "typical middle-class family" would save more than $5,000 per year, and employers would save over $9,400 per worker annually. 

Additionally, some observers consulted agreed that the new details in the plan show that certain populations who may have been covered by Obamacare could wind up paying more in this system.  For example, low-income workers with Medicaid coverage could end up paying more under the proposed 6.2 percent employer payroll tax.  That amount would be higher than what Medicaid enrollees pay out of pocket for care. Low-income workers insured through their employers could benefit because that 6.2 percent tax may be lower than what they pay in premiums. 

Dubious Viability 

When Sen. Michael Bennet sought a cloture vote on the public option during Senate floor consideration of the ACA in 2010, he was 10 Senators shy of the 50 needed to even do that -- despite the significant Democratic majority.  Today, the policy would assuredly be more difficult to pass, with Congress likely to remain in GOP hands.
 
While Sanders’ plan’s dubious viability is a noteworthy failure, the sheer volume of taxes the Senator proposes to levy against the low- and middle-income families he claims to be fighting for.  

While the headline grabbing aspect of the new income tax brackets on the wealthy is sure to drive the most commentary, the bulk of this plan is meant to be paid for by the income tax premium and new payroll tax – both of these taxes are particularly regressive.  

All of this in order to replace a health care reform law that was hard-won, even during a Democrat majority, and has had to be vigorously defended since the very first day of its passage.  Voters may wonder how debating replacing the ACA and enacting the largest tax increase in history is meant to help them.  Said Vice President Biden today:  "We need a more progressive tax code -- not confiscatory policy. Not socialism.  A tax code."

Recent Updates

HRC's Tax Policy  (Jan. 17)
2016 Tax Agenda on the Hill  (Jan. 16)
Glass-Steagall, Take 2  (Jan. 13)
2016 Tax Policy Issues  (Jan. 8)
Sanders Proposals/GS & TBTF (Jan. 7)
Sanders' Fin Reg Proposals  (Jan. 5)
Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
Omnibus Situation  (Dec. 14)
FY 2016 Omnibus Talks (Dec. 10)
Customs Bill  (Dec. 8)
Tax Extender Negotiations  (Dec. 6) 
Brown on HFT  (Dec. 4)
Shelby 2.0 Update  (Dec. 3)
HTF Conference Report  (Dec. 3)
FY 2016 -- Policy Riders  (Nov. 30)
Dodd-Frank and the CR  (Nov. 13)
FRB Interest Rate Policy  (Nov. 9)
Ryan and Tax Reform (Nov. 4)
HTF/Pay-fors  (Nov. 3)
FRB System Risk Rule  (Nov. 2)
Ex-Im Reauthorization  (Oct. 30)
Tax Extenders  (Oct. 30)
Boehner Budget Deal (Oct. 27)
Ex-Im Reauthorization  (Oct. 26) 
Debt and Debt Limit  (Oct. 22)
SEC Nominations  (Oct. 20)
TPP/Currency Manipulation  (Oct. 15)
Ex-Im Update  (Oct.  9)
Fed Dividend  (Oct. 7)
Debt/Extraordinary Measures  (Oct. 6)
Jobs Report (Oct. 2)
Fiduciary Rule  (Oct. 1)
FY2016 Budget/CR  (Sept. 29)
Trade/TPP  (Sept. 25)
GSE Reform  (Sept. 25)
Carried Interest  (Sept. 23)
Bush Tax Cuts  (Sept. 15)
Puerto Rico  (Jul. 23)
Shelby 2.0  (June 24)