Democratic candidates’ proposed wealth, income taxes: who has the lowest and highest tax plan?
Any wealth tax, or tax increase, would require passage by Congress. Is that likely?
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If a Democrat wins the White House in November, what happens to our taxes?
Short answer: The only leading candidate who might succeed in passing a wealth tax is former Vice President Joe Biden, depending on the makeup of Congress. And the stock market won’t like his nomination.
Current top tax rates are 40.2% for labor income (our paychecks) and 23.8% on investment income (our portfolios).
Biden’s proposed wealth tax is slightly less than other Dem candidates’ — a top marginal rate of 51.8% on labor and 43.4% on investment income.
Massachusetts Sen. Elizabeth Warren would raise wealth taxes to 53% on labor income and 58.2% on investments, and Vermont Sen. Bernie Sanders proposed raising wealth rates to a whopping 69.2% on labor income and 55.8% on investment income.
Here are the details of each proposal, courtesy of the Penn Wharton Budget Model, which provides economic analysis of the fiscal impact of public policy, from the Wharton School of the University of Pennsylvania.
Start with Sanders’ tax rates — the highest.
Sanders targets high-net-worth households. His wealth tax would apply graduated rates up to 8% on those with net worth over $32 million, while the estate tax would lower the exemption to $3.5 million ($7 million for married couples). His tax plan would hurt GDP growth as well, Penn Wharton said.
The Sanders wealth tax would raise between $2.8 trillion and $3.3 trillion over 10 years, about $1 trillion to $1.5 trillion less than the Sanders campaign estimates, the Penn Wharton folks conclude. The Sanders estate tax would raise an additional $267 billion over 10 years, increasing the percentage of decedents affected by the estate tax to about 0.5% in 2030.
Now, Warren.
Warren proposed a wealth tax equal to 2% of net worth above $50 million and 6% of net worth above $1 billion, which her campaign estimates would raise $3.75 trillion over 10 years. Her proposal would raise about $2.7 trillion over fiscal years 2021 to 2030, according to Penn Wharton Read the analysis on its website: https://budgetmodel.wharton.upenn.edu.
Finally, Biden.
His plan focuses on taxing capital gains and corporate income. Penn Wharton analyzed nine provisions of the Biden tax plan, projecting it would raise between $2.3 trillion and $2.6 trillion over 10 years. That’s roughly $600 billion to $900 billion less than the Biden campaign estimates.
Biden’s tax increases fall mostly on the top 0.1% of high-income Americans — on average, taxpayers in that group would see annual taxes increase by more than $1 million and their after-tax incomes would fall by 14%, Penn Wharton said.
Odds of passage are low
Will any tax get passed after 2020? Michael Gillen, head of tax advisory group at Duane Morris, sees three scenarios:
Republican president with a Republican or Democratic majority in the Senate. Under this scenario, Gillen said, “it’s unlikely Congress would pass any meaningful tax changes, whether favorable or unfavorable to taxpayers.”
Democratic president, Republican majority in the Senate. “Should a Democrat succeed in ousting Trump, any tax plan championed by a Democratic president would be limited by the most moderate members of the House. In the event Republicans retain control of the Senate, a tax package would require bipartisan support to pass, which would be doubtful.”
Democratic president, Democratic majority in the Senate. “I would almost guarantee a tax increase. An increase to the ordinary tax rate from 37% to the pre-2017 rate of 39.6% would be most politically palatable. While we saw rates of 50% as recently as 1986, the maximum rate has stayed below 40% for the past 30 years. I don’t see 52% in our near future. However, the tax increase that would raise the most revenue, and which I suspect is most likely to pass, would be the capital gains rate – nearly doubling the tax from 20% to 39.6%. I think a great number of Democratic voters would support an increased tax on capital gains.”
By contrast, increases to payroll tax rates are “pie-in-the-sky dreams. Payroll taxes are paid across all levels of income, so I find it hard to believe that Sanders’ flat 11.5% new tax will be assessed against workers earning $30,000 and $1 million,” Gillen said.
“What could happen with payroll taxes is a more significant lifting of the cap on Social Security taxes. Currently, the employee and employer each pay 6.2%, for a total of 12.4%, of wages, up to a maximum wage limit of $137,700. I could see an increase in the payroll tax by removing this limit or dramatically increasing it,” Gillen said.
Post-election
If Trump wins re-election in 2020, “we still don’t see a high probability of him enacting another Trump 2.0 tax cut," said Anthony Roth, chief investment officer at Wilmington Trust.
If Biden is nominated, however, the stock market may fall in the short term. It’s widely felt that Warren and Sanders can’t beat Trump, and thus the stock markets would rise on their nomination.
If any Democrat wins, “all the progressive candidates want to move up the capital gains tax to the ordinary income tax rate. If we get a Democrat president, they will be able to do this only if they have a majority in the Senate and House,” which is unlikely, Roth said.
If Biden wins the nomination, “the stock markets will react more negatively than Sanders or Warren. Because, in total, what Sanders and Warren want to do with taxes is more draconian than Biden’s plans. Biden has said he would rescind tax cuts that Trump brought forth; that would lead to marginally higher tax rates on individuals and meaningful higher rates on corporations,” Roth said.
“Warren and Sanders have much less probability of beating Trump. The moderate middle of the electorate doesn’t want to see taxes go up. So if Warren or Sanders are the nominee, we’ll see the middle of the electorate respond negatively or sit out the election,” and the stock market will likely rally, he said.
If you’re interested in learning more, Isdaner & Associates in Bala Cynwyd will host a Thursday, Feb. 6 event that’s open to the public.
Isdaner accounts will host the discussion from 8:30 am-10 am at the Marriott Courtyard on City Avenue on taxes, the Democratic candidates and other tax strategies.
To attend, register via this link https://www.eventbrite.com/e/seminar-2020-a-clear-focus-on-new-tax-legislation-the-election-tickets-89082954515.