STUMP » Articles » Taxing Tuesday: Mmmmmm, Donuts... I Mean, Hmmmm, Biden and Sanders Tax Plans » 10 March 2020, 21:49

Where Stu & MP spout off about everything.

Taxing Tuesday: Mmmmmm, Donuts... I Mean, Hmmmm, Biden and Sanders Tax Plans  

by

10 March 2020, 21:49

Before I begin, you can subscribe to the STUMP newsletter on substack. See here for my new substack site, which I’ll be using to notify folks when I drop new posts. And I may be doing some “cool links I found” stuff, too.

I’m still learning my way with substack, so please email me at marypat.campbell@gmail.com if you run into trouble!

BIDEN TAX PLAN

WSJ: Biden Tax Plan Targeting Top Earners Would Raise $4 Trillion in 10 Years, Study Says

Former Vice President Joe Biden would raise taxes by $4 trillion over a decade, concentrating those higher levies on top earners, according to a study of his tax proposals.

Mr. Biden, the front-runner for the Democratic presidential nomination, would increase federal taxes by about 8% as a whole, but the effects would vary sharply by income group, according to the analysis released on Thursday by the Tax Policy Center, a Washington research group run by a former Obama administration official.

The top 1% of households would pay 74% of the additional taxes and they would see their after-tax income drop by 17% in 2021. That would be an average tax increase of nearly $300,000. Middle-income households would see tax increases averaging $260 in 2021, mostly because of the indirect effects of corporate tax increases. That would be less than 0.5% of after-tax income.

…..
Mr. Biden would raise the top individual tax rate to 39.6% from 37% and limit deductions for people earning over $400,000.

People would have to pay income taxes on unrealized gains at death. That would change current law, which exempts those gains and imposes taxes only on the difference between the value at death and the value when later sold by heirs.

The life insurance industry thanks you, Joe.

Capital gains would be taxed at the same rates as ordinary income for taxpayers with incomes above $1 million. Social Security taxes would apply to wages and self-employment income over $400,000, rather than being capped at $137,700 as they are this year.

Oh jeez, a donut hole.

via GIPHY

Shut up, Homer.

Anyway, there is some more analysis here at Wharton:

Presidential candidate Joe Biden’s campaign recently released more details regarding his tax plan. Relative to current law, PWBM projects that the updated Biden tax plan would raise between $3.1 trillion (including macroeconomic effects) and $3.7 trillion (not including macroeconomic effects) in additional revenue over the 10-year budget window 2021 – 2030 while reducing GDP by 0.6 percent in 2030 and by 0.7 percent in 2050. Almost 54 percent of the tax increase would fall on the top 0.1 percent of the income distribution.

The same site has some other analyses, two of which I’ll excerpt quickly…. and then move on.

DUELING SOCIAL SECURITY PROPOSALS

That aren’t dueling….much.

I don’t want to highlight the benefit changes much, but get back to that infamous “donut hole” I mentioned above.

Biden got a first bite at the donut hole above, so let’s let Bernie go first this time:

ANALYSIS OF THE SANDERS PLAN FOR SOCIAL SECURITY

PWBM projects that Democratic presidential candidate Bernie Sanders’ Social Security reform plan would reduce the program’s conventional 75-year imbalance by 2.3 percent of current law taxable payroll, leaving a remaining imbalance equal to 1.2 percent of current law taxable payroll. We project that it would lower GDP by 0.9 percent in 2030 and 1.0 percent in 2050.

Hmmm, what does that mean in real terms?

Democratic presidential candidate Senator Bernie Sanders has proposed changes to Social Security policy that increase benefits for low earners and increase program income by levying “donut hole” payroll taxes on those with earnings above $250,000 and by dedicating proceeds from a new tax on high investment income to the program.

Oh, ffs. That damn donut hole.

Introduce a “donut hole” tax increase on high career earners: Under current law, the 12.4 percent Social Security (OASDI) employer and employee combined payroll tax rate applies to earnings up to the annual taxable maximum level ($137,700 in 2020).

The Sanders plan increases Social Security taxes by creating a “donut hole” in the payroll tax structure. While earnings immediately above the current taxable maximum would continue to be exempt from Social Security taxes, earnings above $250,000 would be taxed at the 12.4 percent rate, raising more revenue compared to the Biden plan which places the donut hole tax bracket at $400,000. Similar to the Biden plan, the Sanders donut hole tax would not trigger additional benefits.

At some future date, the donut hole would disappear and all earnings would be subject to full payroll taxes. The reason for this is that the annual taxable maximum level ($137,700 in 2020) would continue to grow with average wage growth, as under current law, while the $250,000 threshold would remain fixed because it is not indexed to wage growth. The donut hole, therefore, disappears once the annual taxable maximum level reaches $250,000. Because of the lower donut hole tax bracket under the Sanders plan, this will happen much earlier compared to the Biden plan.

To make it personal for a moment: I have been above the Social Security payroll tax cap for a long time now.

Let me show you how long:

If you are not familiar — there’s only so much of one’s wages which are hit with Social Security payroll taxes (there is no such cap for Medicare). That cap is used for payroll taxes… and also for earnings used for determining your Social Security benefit. For obvious reasons, there are limits to how much retirement benefits the federal government is willing to throw in on the behalf of high income folks.

It is less obvious (except for those of us who know why this was done) why the same cap is used for taxation purposes.

It is really unobvious why one would make a “donut hole” so that people like me would still get a few extra hundred dollars per year because there was still a SocSec tax cap… for most of us. I do know people who would go above that attachment point for re-implementing SocSec. I may one day explain this on the blog, but today is not that day!

Biden’s plan isn’t hugely different, imo. The main difference is how big the donut hole is.

TAX STORIES

I’m sure that whenever whatever IRS employees had to deal with them, it was daytime…. Oh, that’s not what you mean. Uh huh.

Don’t worry. Plenty of people have seen Trump’s tax records. You may realize the big reason that none of this has been leaked (while all sorts of other crap has been) is that it’s not as juicy as you hope it is. Or that it’s harder to twist into something interesting.

TAX TWEETS

Why would it?

Corporations are a convenient fiction. Taxes are paid by people. [Don’t tell me that corps are people. They aren’t… they’re persons… and no, I’m not going to explain the distinction right now.]

I tried this, but found it unhelpful (personally). FTR, my federal return was the least of my tax returns. I would rather have state withholding more accurate.

Man, this is not as fun as soda taxes.

I grew up in Georgia, but I can never go back.

Because of the frickin pine trees. And, specifically, pine pollen.

ACHOO.

Reminds me of a story I heard from a relative re: their first printed paycheck (as opposed to getting cash for oddjobs as a teen).

Once they saw all that was taken out of their check in various taxes…. they were a lot less interested in listening to the “just slap a tax on it” politicians.

See y’all next week! And substack!


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