As the race for the Democratic nomination for President heats up and the first primary election taking place in just 3 months, candidates have begun to release more details about their proposed tax plans. While these proposed plans will undoubtedly evolve and change over time and are of course subject to being passed by Congress, we take a brief look at where some of the leading candidates stand currently. While there is no shortage of candidates seeking the Democratic nomination, Joe Biden, Elizabeth Warren, and Bernie Sanders are currently running as the top three in that order in polling. Accordingly, I will just focus on each of their proposed tax plans and will address income tax, both individual and corporate, estate tax, and proposed wealth taxes.
Joe Biden
Let’s start with Joe Biden, who appears to be leading in the polls at the time of this writing. Of all the candidate’s proposed plans, Biden’s plan is viewed to be the most conservative. Biden has not made tax changes a major part of his campaigning to date, particularly when you compare him to Elizabeth Warren and Bernie Sanders.
Income and Payroll Taxes
Biden is proposing to raise the highest individual income tax bracket from 37% back to 39.6%, and in conjunction, Biden would also double the capital gains rates on those high earners who earn over one-million dollars per year. Biden is also proposing reducing the cap on itemized deductions from 50% of adjusted gross income down to 28%. Biden proposing to eliminate the step up in basis that is current available to assets included in the gross estate of a deceased individual. This is would subject such appreciated assets to gain in the hands of heirs when sold, and almost act as a double taxation scheme for assets in which are subject to the estate tax at their fair market value but do not receive a stepped up income tax basis to that fair market value.
Additionally, Biden proposes eliminating the income-based cap on the premium tax credit under the Affordable Care Act, which would allow all families purchasing health insurance to qualify for the credit rather than only those below a certain income threshold. He has also proposed several provisions aimed at benefiting senior citizens including more tax breaks for those who pay for long-term care insurance with their retirement savings, allowing low income workers over 65 to qualify for the earned income tax credit which is not available to those over 65 under current law.
As part of his climate change plan, Biden has also issued several tax provisions related to eliminating the fossil fuels credits and reducing incentive provisions for corporations and the wealthy who may take advantage of loopholes that allow evasion, outsourcing, and tax havens. Biden also proposes to restore the full electric vehicle tax credit and promote carbon capture, use, and storage through tax incentives.
Further, Biden would eliminate the cap on income that is subject to Social Security payroll tax. Currently, all earned income up to $132,900 is subject to a 12.4% Social Security payroll tax (6.2% employer, 6.2% employee, with self-employed individuals paying the full 12.4%). Biden would eliminate this cap such that all earned income would be subject to the 12.4% Social Security payroll tax. At the corporate level, Biden would raise the corporate tax rate from 21% to 28%.
Estate and Wealth Taxes
With the Tax Cut and Jobs Act (“TCJA”), the estate tax exemption was doubled from $5 million to $10 million, indexed for inflation. Biden’s proposed tax plan would eliminate the changes made by the TCJA and bring the estate tax exemption amount back down to its pre-TCJA level of $5 million, indexed for inflation. Accordingly, should a candidate with such a plan be elected, it may prove fruitful to utilize the existing enhanced exemption in light of the Final Regulations recently issued with respect to claw-back concerns.1
Biden has not proposed any wealth taxes to date, though many of the other candidates have.
Other Taxes
Biden has stated that he would support a carbon tax though no details have been released. This likely would be in the form of a tax on carbon emissions targeted at corporations.
Elizabeth Warren
Of all the candidates, Elizabeth Warren may be the most outspoken on taxes and her proposed tax plans. She has been touting a wealth tax, sometimes referred to as the Ultra-Millionaire’s Tax,with little details being released. However, in the last month or so, she has released more details about her proposed tax plan and how it would work.
Income and Payroll Taxes
Like Biden, Warren is proposing a top individual income tax rate of 39.6%. Warren would also impose a mark to market annual capital gains tax for the wealthiest 1% of households which would be owed regardless of whether there was a realization event. It is not clear if this would apply to assets that have depreciated in value over the course of a year and thus would generate a loss as opposed to a gain. Additionally, Warren would raise capital gains rates up to the same tax rates paid on wages. Warren also proposes to do away with the carried interest rule and provide that all carried interest income is taxed as ordinary income.
Warren would also allow same-sex couples to file amended returns to get refunds for tax years before they could file joint returns, expand the child tax credit and the earned income tax credit, cancel student loans of up to $50,000 for households earning $100,000 or less, and do away with advertising expense deductions for drug manufacturers.
On the corporate side, Warren is proposing raising the corporate income tax rate back to 35%. Warren also proposed what she terms the Real Corporate Profits Tax which is a 7% tax on all corporate profits reported to investors in excess $100 million. 2 Warren also is also proposing to eliminate fossil fuel credits for corporations.
On the payroll side, Warren would do away with the cap which currently sits at $132,900 and tax earned income of up to $250,000 at 12.4%. Warren is proposing a 14.8% social security payroll tax on wages above $250,000 as well as a 14.8% social security tax on net investment income for individuals making more than $250,000.
Warren also proposed or discussed numerous tax credits aimed at climate change and reducing carbon emissions.
Estate and Wealth Taxes
Warren would repeal the TCJA and set the estate tax exemption back to 2009 levels with more progressive estate tax rates rather than a flat rate of 40% that we currently have. The estate tax exemption in 2009 was $3.5 million.
Warren’s Ultra-Millionaire tax, generally classified as a “wealth tax,” would assess an annual tax of 2% on net worth above $50 million and 6% on net worth above $1 billion. For purposes of Warren’s Ultra-Millionaire Tax, net worth would be made up of all worldwide assets, including residences, trusts, businesses, and retirement accounts. Warren also count assets owned by minor children in her proposed calculation of net worth. Warren would provide for a 5-year payment plan for when there are liquidity issues.3
Other Taxes
Warren has proposed a financial transactions tax on the purchase of stocks, bonds, and other financial instruments whereby a .1% tax would be owed on the value of the purchase. She would increase the excise tax on guns and ammunitions from 10% currently to 30% and 50% respectively.4 Warren also proposes a lobbying tax on companies that spend $500,000 or more annually on lobbying.5 Warren also indicated she would support a carbon tax though no plan or carbon tax has been proposed to date.
Bernie Sanders
Bernie Sanders is proposing the most progressive tax policy which includes substantial tax increases resulting in the highest tax rates of all the candidates.
Income and Payroll Taxes
Sanders would increase the highest individual income tax rate to 70% for individuals earning more than $10 million while limiting tax deductions for individuals in the top bracket. Sanders would also do away with the capital gains rates for individuals earning more than $250,000 and tax those gains as ordinary income under his progressive tax rates. Thus, capital gains could be subject to a 70% tax under Sanders plan. Sanders would also expand the child tax credit and the earned income tax credit.
On the business side, Sanders would do away with the 20% Section 199A deduction available to certain pass-through businesses and would tax larger pass-through businesses as corporations.
On the corporate side, Sanders would increase the corporate income tax rate to 35% and eliminate basically every tax break and “loophole” available to corporations. Sanders has proposed an economic depreciation scheme6 and limiting the interest expense deduction to 20% of adjusted taxable income.7 Sanders has also proposed a plan to tax corporations that have a large pay gap between their highest paid employee and their median worker rates, and this tax would only apply to corporations with annual revenue of more than $100 million.8 Sanders would also eliminate fossil fuel credits at the corporate level.
On the payroll side, Sanders would get rid of the social security payroll tax exemption for individuals with income above $250,000, but wages between $132,900 and $250,000 would remain exempt from the social security payroll tax.
Estate and Wealth Taxes
Sanders would create a higher, progressive estate tax. Sanders would return the estate tax exemption to 2009 levels with a progressive tax rate. Sanders would tax estates with a value from $3.5 million to $10 million at a 45%; those with a value from $10 million to $50 million at a 50%, those with a value from $50 million to $1 billion at a 55%, and those with a value over $1 billion at a 77% rate.9
Sanders has also proposed a wealth tax progressive rate structure. Sanders would start with a 1% annual tax on net worth above $32 million for married couples and increase progressively until the top rate of 8% is reach on net worth over $10 billion.10
Other Taxes
Sander has proposed a financial transactions tax on the every trade of stocks, bonds, and other financial instruments as well as a carbon tax on carbon emissions.
Summary
The chart below summarizes the proposed tax plans discussed above. Of course, these plans will change many times throughout the campaigns, and in the end, we all know that it is Congress who makes the tax laws, not the President. Nevertheless, these proposed plans give us some insight into the candidates’ goals as President, and if one of these candidates wins the presidency and if Democrats keep the house and take the Senate, some or all of these proposed tax plans may well become a reality.
|
|
Current Law |
Joe Biden |
Elizabeth Warren |
Bernie Sanders |
| Top Individual Income Tax Rate |
37% |
39.6% |
39.6% |
70% |
| Top Capital Gains Rate |
20% |
39.6% |
39.6% |
70% |
| Corporate Tax Rate |
21% |
28% |
35% |
35% |
| Social Security Payroll Tax |
12.4% on first $132,900, none thereafter |
No cap, all earned income taxed at 12.4% |
12.4% up to $250,000, 14.8% on all earned income in excess of $250,000 |
12.4% on earned income up to $132,900, and 12.4% on earned income above $250,000 |
| Estate Tax Exemption |
$10 million, indexed for inflation |
$5 million, indexed for inflation |
$3.5 million, unclear whether this would be indexed for inflation |
$3.5 million with progressive rates, unclear whether this would be indexed for inflation |
| Wealth Tax |
N/A |
No |
2% on net worth above $50 million and 6% on net worth above $1 billion |
1% annual tax on net worth above $32 million for married couples, and increase progressively until the top rate of 8% is reach on net worth over $10 billion |
| Other Taxes | N/A | Possible carbon tax | Financial transactions tax, carbon tax, corporate profits tax, increased excise tax on guns and ammunition, corporate lobbying expense tax |
Financial transactions tax, carbon tax, wage gap tax on corporations |
Footnotes
- Treasury Decision 9984; For a discussion of these Final Regulations, see here.
- https://elizabethwarren.com/plans/real-corporate-profits
- https://elizabethwarren.com/plans/ultra-millionaire-tax
- https://elizabethwarren.com/plans/gun-violence
- https://elizabethwarren.com/plans/excessive-lobbying-tax
- In short, Sander’s economic depreciation scheme seeks to expense items based on the true depreciation in value which would eliminate expensing and other forms of accelerated depreciation, the ability to write off the cost of investments in equipment and other assets which are fully expensed prior to the expiration of their useful life.
- https://berniesanders.com/issues/corporate-accountability-and-democracy/
- https://berniesanders.com/issues/income-inequality-tax-plan/
- https://berniesanders.com/issues/tax-increases-for-the-rich/
- https://berniesanders.com/issues/tax-extreme-wealth/