According to UC Berkeley economists Emmanuel Saez and Gabriel Zucman, all of the Democratic candidates’ plans increase tax rates on the rich but to very different degrees: Joe Biden is the most moderate; Sanders’s and Warren’s plans sharply increase progressivity. Overall, the Buttigieg plan raises 3.9 percent of national income extra in taxes, more than Warren (3.2 percent), Sanders (2.6 percent), and Biden (1.5 percent).
Editors’ Note: UC Berkeley economists Emmanuel Saez and Gabriel Zucman have updated their initial October 2019 modeling of the leading candidates in the Democratic primary. They have refined the proposals by Joe Biden and Bernie Sanders, incorporated the new proposed taxes by Elizabeth Warren to fund Medicare for All and added Pete Buttigieg’s tax plans (all as of January 20, 2020). You can read the complete document is available here.
Current Tax System
The starting point is the US tax system of 2018, the year following President Trump’s tax reform. When taking into account all taxes (individual income taxes, corporate taxes, payroll taxes, consumption taxes, etc.) at all levels of governments (federal, state, and local), all groups of the population pay around 28 percent of their income in taxes, except the top 400 richest Americans who pay 23 percent.
When treating mandatory private health insurance premiums as taxes, the US tax system is in fact highly regressive, with tax rates of about 40 percent for the middle-income groups, falling to 23 percent for billionaires.
Private insurance premiums are best analyzed as a large privatized poll tax on covered workers: a tax because they’re mandatory (employers with 50+ workers have to offer insurance) while most other groups get highly subsidized insurance (Medicaid, Medicare, ACA exchanges); privatized because they’re managed by employers; and a poll tax because they are essentially a fixed amount per covered worker (the secretary pays the same amount as the executive).
The figure below contrasts the average tax rate paid by each income group today to the rates that would prevail under the plans of Biden, Buttigieg, Sanders, and Warren, and compare them to the existing tax system (Trump) as well as the Obama tax system (i.e., repealing the Trump tax cut). This is based on the main elements of the candidates’ proposed tax plans, summarized in the attached table.
Some of the proposals are not yet fully specified, in which case we do not model them (unless there is a prior plan to draw upon or the candidates have made clear statements about their intentions).
We include private health insurance contributions through employers (7 percent of national income) as a tax currently paid by the corresponding covered workers. Both Warren and Sanders plan to abolish this private poll tax and replace it with public funding through new taxes. Because the new proposed taxes are more progressive than the existing private poll tax, this effectively lowers the tax rate on the bottom 90 percent.
The Biden and Buttigieg plans leave tax rates pretty much intact on the bottom 90 percent (very slight increase due to higher corporate taxes that reduce profits from corporate stocks owned by the bottom 90 percent primarily through pension funds).
Tax Rates at the Top
All plans increase tax rates on the rich but to very different degrees. The Biden plan is the most moderate but is still significantly more progressive than just repealing the Trump tax cut (the key additional progressive element is taxing realized capital gains at ordinary rates and at death, total tax rates on the top 0.1 percent increase by about 7-8 points).
The Buttigieg plan increases tax progressivity more significantly (the key additional element is the extra 12.4 percent social security tax at the top on both labor and capital income, total tax rates on the top 0.1 percent increase by about 16 points to about 50 percent).
The Sanders and Warren plans increase very sharply tax progressivity (the key additional element is the very progressive wealth tax particularly on billionaires, 6 percent marginal tax on billionaires for Warren, and graduated wealth tax of 5 percent to 8 percent on billionaires for Sanders).
The Biden plan raises 1.5 percent of national income extra in taxes (relative to the current system). The Buttigieg plan raises 3.9 percent of national income extra in taxes (relative to the current system). The Warren tax plan raises 3.2 percent of national income extra in taxes (over and above funding all existing private health insurance contributions, which is 7 percent of national income). The Sanders tax plan raises 2.6 percent of national income extra (over and above funding all existing private health insurance contributions, which is 7 percent of national income).
Importantly, the figure displays only taxes and not the extra government spending outlays that candidates are proposing with their extra tax revenue (such as higher social security benefits, lower education costs, insuring more people with more generous health plans, etc.).
Our scoring is quantitatively close to the tax scoring numbers released by campaigns. All the computations are available in the companion excel file and have been added to our online tax simulator Taxjusticenow.org so that users can interactively explore and modify the proposed plans.
Note to The Figure:
The figure depicts the average tax rate by income groups in 2018 after the Trump tax cut (red line) and under the four leading candidates for the Democratic presidential primary: Joe Biden (light blue), Pete Buttigieg (yellow), Elizabeth Warren (blue), and Bernie Sanders (dark blue). It also depicts tax progressivity if the Trump tax cut were repealed and the federal tax system reverted to Obama (black line).
All federal, state and local taxes are included. We also include private health insurance contributions (7 percent of national income) as an extra tax paid by insured workers as Warren and Sanders plan to replace these private contributions by public funding. In this case, current private health insurance contributions become extra cash wage income for workers and extra taxes fund health insurance.
The candidates’ tax plans are not necessarily finalized (and hence may not reflect fully the campaigns’ goals). The Biden plan raises 1.5 percent of national income extra in taxes (relative to the current system). The Buttigieg plan raises 3.9 percent of national income extra in taxes (relative to the current system) The Warren tax plan raises 3.2 percent of national income extra in taxes (over and above funding all existing private health insurance contributions). The Sanders tax plan raises 2.6 percent of national income extra (over and above funding all existing private health insurance contributions).
The Obama line (repealing the Trump tax cut) raises 1.6 percent of national income extra. Such surplus can be used for new outlays that ultimately benefit people (and are not modeled here). Our scoring is quantitatively close to the tax scoring numbers released by campaigns. Taxes are expressed as a fraction of pre-tax income.
Pre-tax income is comprehensive (it includes all labor and capital income including fringe benefits, retained earnings of corporations, etc.) and sums up to national income as described in Piketty, Saez, and Zucman (2018). Individual adults are divided into percentiles with finer breakdown within the top 1 percent. Incomes within married couples are split equally. The sample is limited to adults with pre-tax income above $7,500 (half-time work at federal minimum wage) as taxes become large relative to pre-tax income for very low incomes. This sample includes 90 percent of adults and virtually 100 percent of national income.
All the computations are available in the companion excel file (taxsimulator2) and have been added our online tax
simulator taxjusticenow.org so that users can interactively explore and modify the proposed plans.
Emmanuel Saez is a Professor of Economics at UC Berkeley and also the director of the Center for Equitable Growth. Gabriel Zucman is an Associate Professor of Economics at UC Berkeley. They co-authored the recent book The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.
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