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All Contents © 2020The Kiplinger Washington Editors
By Rocky Mengle, Tax Editor
| June 25, 2019Updated March 19, 2020
At one point we had over 20 Democratic candidates vying to face President Trump in the 2020 general election, but now we're down to two—Joe Biden and Bernie Sanders. The Democratic party is moving to the left, and party voters want to know how each candidate will address income inequality as president. That means pushing progressive ideas on job creation, health care, higher education and other economic issues. Tax policy has to be part of the equation, too. Any broad new social programs will have to be paid for somehow, and that usually means tinkering with the tax code. So when it comes to taxes, here's what Biden and Sanders are proposing. Start brushing up now, so you'll know who to vote for when your time comes.
Home State: Delaware
Highest Office: U.S. Vice President
While Bernie Sanders wants to adopt a Medicare-for-all health care system, Joe Biden would rather keep and improve Obamacare. As part of his plan to do this, he would eliminate the income-based cap on the premium tax credit so that all families who purchase insurance through a health insurance exchange can claim the credit. He would also increase the credit amount by basing it on the cost of a gold-level health plan, rather than a less-expensive silver-level plan. In addition, Biden's health care plan would impose a tax penalty on pharmaceutical companies that increase drug costs by more than the rate of inflation and take away their deduction for advertising expenses.
The former Vice President has also proposed several tax changes to help senior citizens and those who care for them. First, his plan calls for increased tax benefits for elderly Americans who pay for long-term care insurance with their retirement savings. As president, Biden will also allow low-wage workers over 65 years of age to claim the earned income tax credit (currently, you can't claim the credit if you're over 65). To help protect Social Security, he would make all income subject to the Social Security payroll tax. (Wages above $132,900 are currently not subject to the payroll tax.) In addition, he would create a $5,000 tax credit for "informal" caregivers—family members or other loved ones—providing long-term care to the elderly. Caregivers would also be allowed to make "catch-up" contributions to retirement accounts.
Biden has issued a climate change plan that includes some tax provisions, too. His "Clean Energy Revolution" would be paid for by "reversing the excesses of the Trump tax cuts for corporations, reducing incentives for tax havens, evasion, and outsourcing, ensuring corporations pay their fair share, closing other loopholes in our tax code that reward work not wealth, and ending subsidies for fossil fuels." More specifically, his plan calls for restoring the full electric vehicle tax credit (while aiming it at middle-class consumers), pushing tax breaks for energy efficiency, and increasing tax incentives for carbon capture, use and storage. He has also separately stated that he would support a carbon tax.
Biden's plan to expand access to affordable housing calls for creating a new refundable tax credit of up to $15,000 for first-time homebuyers. The credit would be paid when qualified taxpayers purchase a home, instead of when they file their tax return the following year. He also wants to enact a new renter's tax credit to reduce rent and utility costs to 30% of income for low-income individuals.
Other tax proposals coming out of the Biden camp include:
Home State: Vermont
Highest Office: U.S. Senator
As president, Bernie Sanders would push an ambitious progressive agenda that includes health care for all, jobs for all and college for all. So how would he pay for it all? Largely by taking away tax breaks or adding new taxes for corporations and the wealthy.
For example, to help fund his Medicare-for-all plan, Sanders would increase the top marginal tax rate up to 70% on Americans earning more than $10 million per year and limit tax deductions for anyone in the top tax bracket. He would also impose a 7.5% insurance premium tax on employers (the first $2 million in payroll would be exempt to protect small businesses). However, taxes would go up for middle-class families as well. Employees would be hit with a 4% income-based premium tax (the first $29,000 in income would be exempt for a family of four).
Sanders also has a "wealth tax" plan with a progressive rate structure. It would start with a 1% tax on net worth above $32 million for a married couple. The rate would increase to 2% on net worth from $50 to $250 million, 3% from $250 to $500 million, 4% from $500 million to $1 billion, 5% from $1 to $2.5 billion, 6% from $2.5 to $5 billion, 7% from $5 to $10 billion, and 8% on wealth over $10 billion. (The brackets ranges would be cut in half for singles.) There would also be a 40% exit tax on the net value of all assets under $1 billion and 60% over $1 billion for all wealthy individuals seeking to expatriate to avoid the tax. To enforce the tax, the plan also calls for the creation of a national wealth registry and additional third-party reporting requirements. The IRS would also be required to audit 30% of wealth tax returns for those in the 1% bracket and 100% audit of returns from billionaires.
Another idea to tax the rich that Sanders has touted as a candidate is his plan to create a higher, progressive estate tax. For 2019, only estates worth more than $11.4 million are subject to the federal estate tax, which is imposed at a 40% rate. Under Sanders' plan, estates valued from $3.5 million to $10 million would be tax at a 45% rate; estates valued from $10 million to $50 million, at a 50% rate; estates valued from $50 million to $1 billion, at a 55% rate; and estates valued over $1 billion, at a 77% rate.
In addition, Sanders wants a new financial-transactions tax on stock, bond and derivative trades. The tax rates would be 0.5% for stock trades, 0.1% for bond trades and 0.005% for derivative trades. He wants to eliminate the payroll tax exemption for wages above $250,000, too. Currently, wages above $132,900 are not subject to payroll taxes. (Under Sanders' plan, wages between $132,900 and $250,000 would still not be taxed.)
On the business side, Sanders wants to restore the corporate income tax rate to 35% (it's currently 21%) and get rid of "virtually all corporate tax breaks and loopholes." This includes transitioning to economic depreciation for all investments and further limiting the interest deduction to 20% of adjusted taxable income. He also wants to eliminate the use of offshore tax havens by, among other things, applying the same tax rate on offshore and domestic income. The 20% deduction on pass-through business income would also be repealed under Sanders' plan, and large pass-through entities would be subject to corporate taxes.
Corporations with large pay gaps between their CEO and workers would also pay more taxes under Sanders' "income inequality tax." The plan is to raise the corporate income tax rate for companies with CEO to median worker ratios above 50 to 1. (If the CEO didn't receive the largest paycheck in the corporation, the ratio would be based on the highest-paid employee.) The rate increases would range from 0.5% to 5%, depending on the company's pay ratio. The tax increase would only apply to corporations with annual revenue of more than $100 million.
Rounding out his tax plans, Sanders is also calling for: