The Big 4 & Their Tax Plans

Richard Elliott, UMBC:

At this point in the election, there are four big candidates remaining. Despite the fact that both Bernie Sanders and Ted Cruz are essentially out of the race, they are still representing a faction in their respective party that their frontrunners are not. Sanders’ democratic socialism and genuine progressivism is a stark contrast to Clinton’s neoliberal, establishment politics. Cruz’s ardent conservatism and religious streak is also very different to Trump’s “radical centrism” and authoritarian populism. All four have different ideologies and their tax plans help to showcase their differences. Our current income tax brackets are listed below.

Marginal Tax Rate Single Taxable Income Married Filing Jointly or Qualified Widow(er) Taxable Income Married Filing Separately Taxable Income Head of Household Taxable Income
10% $0 – $9,275 $0 – $18,550 $0 – $9,275 $0 – $13,250
15% $9,276 – $37,650 $18,551 – $75,300 $9,276 – $37,650 $13,251 – $50,400
25% $37,651 – $91,150 $75,301 – $151,900 $37,651 – $75,950 $50,401 – $130,150
28% $91,151 – $190,150 $151,901 – $231,450 $75,951 – $115,725 $130,151 – $210,800
33% $190,151 – $413,350 $231,451 – $413,350 $115,726 – $206,675 $210,801 – $413,350
35% $413,351 – $415,050 $413,351 – $466,950 $206,676 – $233,475 $413,351 – $441,000
39.6% $415,051+ $466,951+ $233,476+ $441,001+

In August of last year, Trump said that our current tax plan lets hedge fund managers “get away with murder”. He emphasized that he would reform the tax code so that middle-class Americans would not be paying higher rates than Wall Street millionaires and billionaires. However, his tax plan does not reflect that. Under a Trump administration, there would be four tax brackets (rather than the current 7): 0%, 10%, 20%, and 25%. While this does lower taxes for most Americans, the greatest savings will be going to the same wealthy elite that he called out. He also plans to lower the corporate tax rate from 35% to 15% and to repeal the estate tax, or the “death tax” as it is referred to in some conservative circles. This tax is only levied on estates worth $5,450,000 or more; yet another tax policy that would benefit only the wealthy and contribute to inequality.

The Citizens for Tax Justice noted that the poorest 20% of Americans would see a tax cut averaging $250, middle-income Americans would see an tax cut averaging just over $2,500, and the wealthiest 1% of Americans would see a tax cut averaging over $227,000. Over the next decade, Trump’s tax plan would reduce federal income tax revenue by $11,980,000,000,000, not including extraneous macroeconomic costs. Unless accompanied by enormous spending cuts, this could nearly double our current national debt. Trump has pledged to balance the budget in ten years without cutting Social Security or Medicare while also increasing defense spending and enacting those tax cuts; an impossible trinity of fiscal policy that has been the Republican plan since the Reagan era.

Next is Ted Cruz. He plans to replace our current progressive tax system with a flat tax of 10% and the corporate tax rate will be lowered to 16%. The current payroll tax to fund Social Security and Medicare, estate tax, Alternative Minimum Tax, and any taxes related to the Affordable Care Act would also be repealed. His goal is tax simplification, to the point that “citizens could fill out their taxes on a postcard”. He even wants to get rid of the IRS, citing its bureaucratic inefficiency despite the fact that the IRS collects $8-$13 for every dollar spent.

According to the Tax Policy Center, his plan would reduce income tax revenue by $8,600,000,000,000 over the next decade. Again, this tax plan will be the most beneficial to the wealthy. According to the conservative Tax Foundation, 30% of the tax cuts would go to the wealthiest 1% of Americans, while the centrist Tax Policy Center argues that half of the tax cuts will go to the wealthiest 1% of Americans and the richest 20% of Americans would get 80% of the tax cuts.  The left-leaning Citizens for Tax Justice says that 65% of the tax cuts would go to the wealthiest 1% and taxes would actually increase for the middle and lower class and that a person in the poorest fifth of the country would actually lose about $6,000 while someone in the top 1% would have about $364,000 more.  Cruz proposes to eliminate the Department of Energy, the Department of Education, Department of Commerce, and the Department of Housing and Urban Development, which would shift money from the government into private hands where costs could be raised and businessman will be less accountable than elected officials.

Both of these plans cut tax revenue for the federal government enormously. This will mandate enormous spending cuts or an enormous rise in the budget deficit, or a combination thereof. However, both candidates support the existence of Social Security and want to raise the defense budget while also balancing the budget. Jared Bernstein notes that it is mathematically impossible to fulfill all of these pledges, writing: “Trump would need to cut spending outside the Social Security, Medicare, and defense by 114 percent to make his budget balance, which is, of course, impossible.” Chris Matthews stated that Cruz’s tax plan would necessitate “massive, unprecedented spending cuts.”

Clinton would create a new tax bracket of 43.6% for individuals making $5,000,000 or more in income. Also, she plans to implement the Buffett Rule: that individuals with at least $1,000,000 in income pay at least 30% of their income in taxes and also reform the capital gains tax so that it reaches a 20% tax after six years rather than after one year. Finally, she would reform the estate tax system so that estates worth in excess of $3,500,000 per person would be taxed.

Clinton’s plan would increase tax revenue by nearly $500,000,000 over the next decade, according to the Tax Foundation, or by $1,100,000,000,000, according to the Tax Policy Center. It is also noted that the bottom 95% of taxpayers would see almost no change in their taxes whereas the wealthiest 1% would receive the biggest increase. The most notable difference between her plan and the plan of her Republican counterparts: it would not explode the national debt. The after-tax income of the wealthiest 1% would decrease by 5% and they would also receive more than 75% of the tax increases under this plan. The Tax Policy Center argues that these tax increases may discourage incentives to work, save, and invest, but CNN Money argues that how the new tax revenue is spent is more important than the tax rate.

Bernie Sanders’ tax plan is wildly different from anything the Republicans, or even Hillary Clinton, have proposed. He would create new estate tax brackets of 45% on estates between $3,500,000 and $10,000,000, 50% on estates between $10,000,000 and $50,000,000, and 55% on all estates valued above $50,000,000. He would add a billionaire surtax of 10%, which would impact only the 530 billionaires in the United States. Taxing Wall Street speculation at .5% on stocks, .1% on bonds, and .005% on derivatives. He wants to remove the wage cap on Social Security, which would only impact the richest 1.5% of Americans. He also believes in taxing capital gains at the same rate as personal income and adding tax brackets of 37% for incomes between $250,000 and $500,000, 43% on income between $500,000 and $2,000,000, 48% on incomes between $2,000,000 and $10,000,000 (which is only .08% of all taxpayers), and 52% on incomes above $10,000,000 (which is only .01% of taxpayers). Another reform he wishes to make is returning corporate profits to America rather than stashing them in offshore subsidiaries.

Senator Sanders wants to make these changes to fund several massive plans. For instance, the “Rebuild America Act” is a public works program to rebuild our infrastructure that would cost approximately $1,000,000,000,000 but could be funded by returning offshore money to the United States. The “College For All” plan would cost around $75,000,000,000 a year and would be funded by the Wall Street speculation tax. The biggest and most ambitious plan would be the universal health care program he has proposed, which would be covered by a 6.2% income based health care premium on employees and a 2.2% income tax on households, alongside other tax revenue. The Tax Foundation states that his tax plan would raise an additional $13,600,000,000,000 over the next decade, but they would also argue that it would only add around $9,800,000,000,000 when accounting for decreased economic output. However, the Tax Policy Center states that his plan would bring in $15,300,000,000,000 to the government as tax revenue. They also note that all income groups will pay additional taxes, but it will particularly come from the upper class. The 2.2% tax on individuals would raise their tax rates, but lower the cost of health care for the overwhelming majority of Americans and thus save them money.

In my opinion, the Sanders plan is the best. It is not necessarily about what the tax rate is, but ensuring that taxes are spent on infrastructure, education, and health care is much better than spending it on war, oil and agriculture subsidies, or a giant border wall. Bernie’s plan is essentially to invest in the growth of America and our future with a New Deal-inspired plan. Clinton’s plan is not awful, but I do not believe it would do enough to curb the control of the super wealthy on our economy. Trump and Cruz both have tax plans that would grow the economy, but would be utterly disastrous for the middle and lower classes and contribute greatly to both income and wealth inequality. Their plans would also wreck the national budget and force austerity measures, which have historically hurt the poorest among us the most.

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