In Thursday’s Democratic debate, Hillary Clinton challenged Bernie Sanders on his spending proposals, suggesting that they were unrealistic and even irresponsible given the real challenges of turning proposals into policy. Sanders’ response was consistent and on message: his spending proposals will be paid for by the rich, Wall Street and large corporations. For the rest of us, he just describes the benefits: universal healthcare, free college tuition, expanded family and medical leave, etc.
Does that mean that the middle class will be unaffected by his tax increases? Probably not, according the Tax Policy Center and most other groups who have analyzed his proposals. But how much will you pay?
Over the past month, Vox and The Nation released calculators that predict how each presidential candidates’ tax policies would affect you based on your income. They’re both interesting and I’d encourage you to check them out. But they come to very different conclusions, despite being based on the same underlying research.
Vox Tax Plan Calculator: Technically right, but misleading
Vox’s calculator is based on a report from the non-partisan Tax Policy Center and for most income levels, it predicts a large increase in overall tax liability.
For someone making the median household income of $53,657, Vox predicts a tax liability increase of $5,770
Given Sanders’ promises that his proposals would be paid for by the rich, Wall Street and large corporations, his critics loved this and shared the calculator widely. But it has also drawn criticism for its methods and how they could skew the tax effect of Sanders’ plan higher. There are two main criticisms:
- Payroll taxes included: The Vox calculator evaluates your “federal tax liability” — roughly the federal taxes associated with you as an individual. In this, they include the substantial increase in payroll taxes that are part of Sanders’ plan. Most economist agree that payroll taxes are ultimately passed on to employees in the form of lower starting salaries and smaller raises, so it isn’t necessarily incorrect to include them in the analysis. But those adjustments happen in the long run, and especially since people generally don’t think of payroll taxes as part of their tax burden, I think including them is misleading.
- Healthcare savings excluded: The whole point of Sanders’ tax proposal is to expand government provided benefits, most notably health care. Assuming both the tax increases and Sanders’ Medicare-for-all proposals are passed (big assumptions), there should be some decrease in healthcare spending by you and/or your employer as the government picks up the tab. Vox doesn’t include those savings because the TPC report omits them. It’s a serious omission, although any estimates about savings in the healthcare space are bound to be speculative.
Together, these two methodology decisions by Vox are going to make Sanders’ plans appear more expensive. Though not wrong, per se, but they’re hidden in the fine print and don’t match how most people think about taxes.
The Nation’s Alternative: Awfully optimistic
In response to Vox’s calculator, The Nation — a progressive magazine that has endorsed Sanders — published a criticism and their own, adjusted calculator. It’s also based on the Tax Policy Center’s report but applies the findings in different ways. Rather than look at tax liability, it tries to predict changes in take-home pay based on the reasonable argument that conceptually, people are more interested in their income after taxes than what your tax rate or liability actually is (although those are just different ways of saying the same thing).
For someone making the median household income of $53,657, The Nation predicts a take-home pay decrease of $58
Like the Vox calculator, it predicts a tax increase (i.e. decrease in take-home pay) for someone making the median household income, although at $58 it’s negligible. It makes some big assumptions to get from the $5,770 tax liability predicted in Vox’s calculator down to $58.
- Ignore payroll taxes: As discussed above, I think it’s ok to ignore these over the short run. People don’t really think about payroll taxes in the same way they think about their personal income taxes and wage adjustments happen over the long run. That said, Sanders’ payroll tax increases are core to his plan and will ultimately have an effect on wages and hiring. When thinking through his proposals, people should keep them in mind.
- Converting employer health expenditures to income: Where the Vox calculator just ignores possible healthcare savings, The Nation counts them as additional income. It assumes that if a Medicare-for-all scheme is passed, then any employer healthcare benefits become wages (after taxes). This strikes me as optimistic: if that spending converts to wages at all, it’s likely to happen in the long run only, similar to the adjustments to wages due to payroll tax increases. And if The Nation is going to exclude payroll taxes for that reason, it isn’t consistent to convert employer health spending to income.
Putting it all together
The estimates that Vox and The Nation use also assume that the Sanders’ campaign’s costing of his proposals is accurate. That’s a big assumption, especially in healthcare, where he assumes that a single-payer system will decrease overall costs by $6.3 trillion over a decade. A Medicare-for-all scheme only directly affects the payer side of healthcare system (as opposed to the doctors, nurses, hospitals, and pharmaceutical and medical device companies that provide healthcare services), and although payers can indirectly affect costs through price negotiations and administrative efficiencies, reducing healthcare costs in a meaningful way could be far more challenging than the campaign acknowledges.
So how much would a Bernie 2016 win cost you? Tough to say. I think a fair assumption is that if your income is above the median household income of ~$55,000, it’s likely that your taxes will increase, slowly at first and increasing substantially after $100,000. If the campaign’s assumptions about cost are too low, then that deficit will have to be made up for somewhere, which could drive taxes even higher. Overall, I think that Sanders has downplayed the extent to which the middle class will have to pitch in and played up a someone-else-will-pay-for-it narrative that’s unhelpful, if not misleading.
Ultimately, a candidates’ election-season proposals are sketches of principles and priorities more than hard policy. The Sanders’ campaign deserves credit for giving as much detail as they have — something the other candidates, especially on the Republican side, have failed to do. They’ve outlined a plan that would radically reshape the way government interacts with the people, and that plan comes with a cost. Hopefully people will dig in for themselves and consider how much they’d be willing to pay for the services he’s promising.