Bernie Sanders’s Tax Plan Would Test an Economic Hypothesis

Sanders would also seek to double the capital gains rate for the richest 2%, and close various loopholes.

Actually, the conservative theory was that tax revenue would increase because all of the new economic activity.

If this sort of plan was enacted, you'd probably see all of the big investment banks revert to partnerships.

Because while Reagan lowered the top tax rates, he also eliminated many loopholes that were allowing top earners to effectively pay very little in taxes.

At the end of the day, pre-Reagan, a 1 percenter might have had a stated tax rate of 70-80%, but due to the massive amount of loopholes and write-offs, were only paying 25-35% in practice. Reagan's reforms allowed for less loopholes and write-offs, which curbed the effort many were willing to go to for tax avoidance, while also meaning that people were paying about the same as before, but paying closer to their actually stated tax rates.

This sort of "static tax analysis" makes tax increases look like they'll generate more revenue than they would really do. This, in turn, makes the policies sound more affordable since the tax revenues are exaggerated.

> why try to start a business when if you succeed, you won't keep that much of the winnings?

I'd call $9.9 million or less a year pretty big "winnings" without hitting these tax thresholds. Plus the way tax brackets work mean you get a pretty big payday on the money below the top most threshold.

It is completely unrealistic to claim that people won't start businesses because any personal profits they make over $10mil/year will be taxed too highly. It is completely out of touch with the financial position that most normal people are in.

Ok... I might be completely off base here, but why can't we increase taxes on mega-earnings, AND refactor tax laws such that startups are incentivized? Eg, you spend 4 years bootstrapping a business while taking a bare minimum salary and then, through whatever mechanism, are ready to 'cash out'. Why can't we look favorably upon people doing this and apply some kind of retroactive benefit to their earnings, taking those 4 years into account?

I don't understand why tax laws are applied evenly (in theory...) across industries. If you make a product that effectively poisons the masses (tobacco, prescribed opiates, watered sugar), resulting in huge negative health outcomes, why aren't those profits taxed unevenly? Do we not need to fix those problems then in the health sector? Humans are irrational, ads are made to take advantage of the bugs in our decision-making code, but it's all on the victims to take care of themselves? Something they've already demonstrated to be incapable of doing.

I'm sure there are intractable problems with this approach that I'm simply unaware of... but it seems better than what's on the table. We need taxation with an ethical component. Make unethical behavior un-profitable.

"Why try to start a business when if you succeed, you won't keep that much of the winnings?"

Some people start businesses to solve legitimate problems. I suspect that higher corporate tax rates would encourage the average Silicon Valley startup founder to seek more fruitful income streams, but people who are passionate about solving real-world problems would still attempt to do so. Furthermore there are people like me who don't work well outside of a startup environment who will pursue startups regardless of the tax rate. I doubt small businesses will be taxed at such a high rate anyway, given that they are the lifeblood of the American middle class. I'd rather have a thousand medium-sized businesses that suppress their growth to avoid higher taxes than ten massive businesses with low tax rates.

It's an experimental return to the tax rates we used to have back in the 40s and 50s, before the massive tax cuts that started being implemented a couple of decades later.

What about comparing to other countries and their tries? I am sure there are some slight variation and cultural differences, but it's a good start. On the same note, I am amazed how many mistakes Europe is doing when the answer sheet is just look at what LKY did.

Federalism.

I would imagine a simulation to be extremely complicated and fairly unreliable given that the Economy is and can be more volatile than weather (and of course is a chaotic system as well).

That being said I bet a simulation would probably be better than many educated guesses.

This is exactly the point of having states. They're not called laboratories of democracy just because we like flowery language.

Obviously you can't experiment on a statewide basis with federal taxes, but you can look at the economies of various states compared to their tax rates. Do states with low or no state income tax fare better than states with high state income tax? Do states with an additional capital gains tax have less investment or stock market participation per capita than states without an additional CG tax?

> It scares me that in our political structure that we feel like we need to experiment with the whole country

How else do you expect to improve anything? You have to try something, and many, many other countries have tax structures close to this, so you know it's not going to fail.

Every tax plan is an experiment. ("Trickle-down effects?") Every law is an experiment. ("Three-strikes?")

Remember, this NYT article was written by a conservative, who previously was a senior fellow at the Manhattan Institute for Policy Research, a conservative think-tank with the goal to "develop and disseminate new ideas that foster greater economic choice and individual responsibility". Before that he was a "commercial real estate banker at Wells Fargo".

There's no need to believe that any of his statements are false, but I can't help wonder why there's a focus why "Bernie Sanders’s Tax Plan Would Test an Economic Hypothesis" when every one of the candidates has an economic hypothesis to test. Even if it's the most extreme (and I think continued tax cuts for the rich and funding multiple overseas wars are also rather extreme), I can't help wonder if there is a bias towards which sources to draw from when writing this article.

Robert Axtell has done a lot of interesting work on agent-based modeling of economic systems [1]. He has a new book coming out this year about simulating national firm growth patterns based on his recent research [2], which could provide an ideological platform for experimenting with policy decisions. Agent-based modeling is relatively new and untrusted among economic policy makers, but if the success of these models is any indication we will see a shift toward a complex systems approach over the next few decades.

1: http://www.css.gmu.edu/~axtell/Rob/Research/Research.html

2: http://www.css.gmu.edu/~axtell/Rob/Research/Pages/Firms.html...

This depends what you mean by economic simulations -- if you are looking for general equilibrium models, Dynare is pretty popular, although many people would just code from scratch, and there are various codes here and there.

Someone else mentioned agent-based models; these are interesting, but there is a reason why there has been some (now decreasing, as models develop) skepticism towards them -- for example, quite often we see rather dumb simulated agents, who do not react to environment and do not learn from their repeated mistakes (for example, by not adjusting their behavior to tax rates...)

Economics is politics, not science.

Government does not hold the money, though, it redistributes it again through contracts, credits, and payments.

All taxes are redistributive. If they weren't, they wouldn't need to exist--i.e. if private income is already paying for everything the country needs, there is no need to use taxes to move it around. But of course, private income is not already paying for everything the country needs.

Consider a basic function of a national government: self defense. Protecting the nation benefits all citizens. But not all citizens have the same amount of wealth and income. So any taxes that pay for national defense, even if applied with one flat rate to every person, will redistribute wealth. It will confer the benefits of national defense equally on a person who paid $1 in taxes and a person who paid $1,000 in taxes. Security is a form of wealth; the $1 payer got a better deal than the $1,000 payer.

So, the concept that taxes are bad if they redistribute wealth is flawed, because redistribution is the entire point of taxes. Instead, to critique tax policies, we need to be specific about the taxes and payments and outcomes.

Unfortunately, my founded belief is that if a Democrat gets elected president, the gang of Republicans that shut down government will also act to stop any action the D-President does.

We've already seen this with Obama. It's not hard to see them doing more of the same.

I'm also curious about #2 here: Some would certainly be offset by the new employer paid taxes... but my employer currently pays significantly more than the proposed tax in premiums now (of which I directly pay almost nothing). When I plug my numbers into http://berniecare.org for example, it says I'll pay $800 more. I know this is a very simplistic calculator, but it definitely seems like this plan would give some employers an opportunity to effectively cut salaries by a sizable chunk. Does anyone know if it has been studied or a transition like this has been observed before?

I don't think your employer would either, no matter who they are. They will take advantage of the system like everyone else. We all benefit from roads, power, water, etc. Bernie is trying to reduce the cost of health care by taking profits out by controlling the costs. If you have an organization that is paying for 300+ million people's insurance, that organization has tremendous leverage. I understand that this is a very complex subject, but that's his position and I support it too. In other words, Bernie sees health care as an investment, in the infrastructure of the well-being of the American people. (I think this last sentence is poorly worded but I gave it my best effort)

(added, post edit) Also, the masses will benefit tremendously from it. He estimates about a $4,000 yr savings for middle class. You might not get any benefits from your employer but you're not voting for your employer, you're voting for your rights (Bernie says health care is a right).

As for this: > 'such a policy shift could happen purely from the POTUS' That's never been Bernie's rally cry. He's calling for a political revolution. Essentially, for young voters and progressives to actively engage in the political system and to vote for progressives (and to encourage others to do so as well).

This is a solid video about it all by Robert Reich: https://www.youtube.com/watch?v=VfIhonVoFSg

1) It can't. Unless Bernie gets several hundred like-minded people elected to the House and Senate, this is going nowhere.

2) Depends on how much competition there is between employers, but it could happen the way you fear, especially in a soft economy.

A policy shift through POTUS is intended to happen with the President acting as a leader of people as opposed to a POTUS that does the standard job of President.

This hasn't happened in my lifetime, and was said was going to happen when Obama was initially elected, and never occurred.

It's an unknown property. To have a POTUS that actually regularly talks to the population directly and asks for their support and effort to force politicians to change. I think a similar example in concept, but not in policy is Hugo Chavez when he had a weekly program to the people.

It's difficult to say what effect this would have, I have absolutely no idea for or against. I think anyone who thinks they do is speaking more from their personal opinions and less about what will actually happen.

--Edit - I said "It's just never been tried in a country like the US", and then I remembered FDR's fireside chats, which are perhaps a better direct correlation than Hugo Chavez.

In america, in 1948, the marginal tax rate on income over 200,000 was 91%.

The 50% tax rate was on income over $16k. Which is $157k in 2015 dollars.

But I'd hate to give up all these top rated hospitals. The US has more expensive health care, but the US also has most of the best hospitals.

http://hospitals.webometrics.info/en/world

The status quo is devastating for the vast majority of aspiring athletes. It’s only a tiny fraction who come out ahead.

It's not just pro-athletes who have short windows of high earnings. A lot of the so called 1% are only in that group for a small number of years. It might not be as extreme as NFL athletes but think about, say, a startup founder who takes a very low salary for 5-10 years but then has 1 great year when he cashes out.

there are athletes in less profitable sports than NFL (or leagues, or teams), their careers also don't generally last long but they still do it.

> they often suffer from health problems and lack of training to do anything else

So do millions of Americans who did not have the chance to make millions playing sports in their twenties. A new tax plan would have the intention of making lives easier for folks struggling with low wages, ex-footballers included.

Good, more room for the next generation.

Only 27%. ONLY! Did you know the UK has a 40% income tax over £42,385? And plenty of doctors, solicitors (lawyers), and managers continue to work for income.

https://www.gov.uk/income-tax-rates/current-rates-and-allowa...

People don't always work solely for the money. Also, that top tax rate is only in income above $10 million. The money below that threshold is taxed at lower rates. So, they would be keeping more than 27% of their total income

At least for doctors, I would think that the average annual income is somewhere around $300,000-400,000 (and that may be too high). This group would, all-in, be taxed somewhere between 50-60% including medicare, Social Security, etc., no where near the 73% imposed on any dollar made past $10,000,000. There may be a handful of doctors in the world pushing the $10,000,000 barrier. I assume that the landscape is similar for lawyers and managers, and that people tend to focus on those making huge money to generalize the whole field.

You are assuming that those professionals choose to remain a part of the workforce due to their high income.

They get to keep a larger fraction of the first $10 million of income.

I wonder how many people earning more than ~$1 million per year really care about the exact level compensation they get (there are an awful lot of people that reduce their working time well before that level of income).

If so, that might improve the job prospects of many up and comers in those fields. I think your point is clear that there's potential for loss because of the retiring talent, but that can incentivize investing in talent down the pipeline.

How many of these people make over $10M a year? Also, even if they do, they wouldn't be taxes that high on the first $10M.

> Doctors, lawyers, and managers, at the point in their careers where they are the most experienced and capable, will likely decide in meaningful numbers it is no longer worth putting in the hours if they only get to keep 27% of what they earned.

Only 27% of what they earned above $10 million. They keep considerably more of the first $10 million they earn.

Did the entire nation sleep through the day they explained how marginal tax rates work, or something?

> Won't this push a lot of highly payed professionals into early retirement?

Probably not.

> Doctors, lawyers, and managers, at the point in their careers where they are the most experienced and capable, will likely decide in meaningful numbers it is no longer worth putting in the hours if they only get to keep 27% of what they earned.

This rate cuts in for income over $10 million/year. That's on the order of 5 times the cutoff for the top 0.1%, and the top 0.1% is on the order of 150k tax payers in a nation of 300+ million people. Even if the whole group decided to stop doing work that would subject them to the new rate (which is different than "early retirement" -- more on that next), we aren't talking about giant numbers.

And the way marginal taxes work, if they are okay with putting in effort as long as they are getting as good as they do under the current tax system but unwilling to do so at the new rate that would kick in at $10 million, then they wouldn't stop working entirely, they'd just stop doing the extra work to go over $10 million a year.

Which probably isn't that much of the work they are already doing in many cases, and, in any case, so what? It opens up more opportunities -- even if you assume no one is willing to do work that would only return what income over the new top marginal rate would return -- for people who are currently making less than the point at which that new top rate kicks in. So, the main effect would be the super rich having somewhat more leisure time (or making decisions less weighted by maximizing financial returns and more based on other factors, which may not always mean less total working time, but better working conditions or more enjoyable work) and everyone else having more income-earning opportunities available.

Not exactly the end of the world.

It's already advantageous to structure your earnings in this way, so most high earners are already doing this as much as is possible.

Yes.

The Company will begin to provide these extra perks to high income earners, solely in order to advance the Company's efficiency. Perks may include: private jet, a house near the office (or far away), fully paid for meals, etc.

Yes. In fact anyone earning that much has already shifted away from ordinary income. Famously, this is what Warren Buffet does to pay a lower tax rate than his secretary. The solution is taxing capital gains the same as ordinary income.

The next level beyond that is to shift earnings into personal corporations which are taxed at a corporate tax rate and enjoy other protections. This is like what Zuckerburg recently did.

The final dodge is to move earnings overseas much like most corporations do today.

With enough money there are always loop holes to exploit. I'm in favor of closing as many as possible. If there's someone out there rich enough to found their own sovereign nation in the Pacific, there's not much we can do about that.

The scenario is this "the idea is aggressively sold during the campaign, and is a key issue in not only the Presidential election but a substantial number of Congressional elections".

Of course, even if Sanders is elected, its likely that there won't be sufficient support to.adopt his programs unmodified in Congress, and some alternative or compromise will be necessary. The same is true, for that matter, of any Presidential candidate.

Part of why you campaign on plans is to shift the public dialogue and set the groupies ds for the eventual compromises that are necessary as part of governing when you aren't a dictator. Holding back preemptively doesn't help that, it just cedes ground to the other side before the work of compromise starts.

Combined top marginal tax rate, yes?

It's 'Hacker News', not 'Objectivist News'.

Rand is overly simplistic and draws false dichotomies abound. It has never been the case that the "productive" have been opposed to wealth redistribution or other state proclivities, since they do in fact benefit greatly from favors such as limited liability laws, barriers to trade, subsidization, land laws, police power, government contract procurement and other initiatives. Hell, the NRA part of the New Deal originated from a plan drafted by the then-president of General Electric, Gerard Swope.

Thus they are not so productive as they are symbiotic with the state. Tax laws are a complete red herring, serving mostly as a public show to incite people about whether or not someone is paying their "fair share," even though nominal balances are generally frictionless in absence of velocity of spending. Poor people have lower wealth elasticities of demand and will always bear the most burden from taxation.

Rothbard is much more lucid than Rand.

The U.S. taxes citizens on worldwide income, so becoming a Russian resident is not likely to help. There is also a significant expatriation tax for those wishing to renounce their citizenship. I suppose you could move to Puerto Rico or expatriate well in advance of any expected earnings.

However you're absolutely correct that there are unfathomable unseen costs and effects.

He is running a propagandistic campaign that seems to be more about 'bending the stick' of public perception of what is mainstream political/economic thinking in North America.

And I think that is good and I wish him well.

But for myself, as someone who would call himself a kind of Marxian socialist, I wish he'd stop calling himself a socialist. He is doing both himself (at best a Euro-style social democrat) and socialism a disservice.

> We should have much better healthcare, education and intolerance of greed

And, isn't that what our current "Hope and Change" was supposed to bring? Just what we need... another 4/8 years of ineffectual leadership that changes nothing because this will cause nothing but gridlock.

Why do we need less 'greed' (if you can even define that)? Is that quantitatively better for the country in some way? If so, how?

Greed isn't going away. In purely socialist countries we just see the greed moved to the government where it is subject to far less checks and balances than in capitalism. For instance, see Cuba where there are a couple of really nice hospitals for the powerful in government, then some dirty hovels for everyone else. This is easily the biggest reason capitalistic countries are so much richer and better off than purely socialist ones.

That's a real problem. Wealth and income are radically different numbers for people at the top end. High income taxes end up punishing the upper middle class instead of the truly wealthy who own assets.

"Trickle down" was a deliberate mischaracterization by opponents of Regan's economic plans. What it construes wasn't implemented.

The tax rates during "trickle down" were hardly much different than they've been for the last 40 years. For instance the top capital gains tax rate was set to 20%. Exactly what it is today.

People might also be more supportive of taxing things they'd never dream of buying.

A tax on consumption? Why that would encourage people to save for the future. Blasphemy in modern economics where negative interest rates are being contemplated to further discourage savings.

Because the increase in taxes would be more than offset by savings in other areas?

Because the payer changes? Maybe I don't understand your question...

To cover the currently uninsured/underinsured, I imagine.

I think think the idea is that the burden of a higher tax will be lower than that of a lower tax rate plus private insurance.

Your taxes may go up, but the claim is that the amount your taxes go up will cost less than the healthcare premiums/out-of-pockets/copays/prescriptions/etc. you have to pay, thus the average individual's net cost for healthcare is lower.

In a single payer system the govt is the only one who pays for healthcare. That means even if healthcare spending is the same or less, the portion of healthcare paid for by the govt increases greatly, requiring higher taxes.

Let's say you make $1000 taxed at 20%, so you have $800 take-home. You spend $400 of that on health insurance. Now you have $400 left, or 40% of the initial amount with a 60% effective "tax" rate.

If your taxes increase to say 40% but health insurance is included your taxes have nominally gone up 20%, but down 20% if you consider non-tax costs that were folded into your taxes.

As anyone who's moved between countries can tell you, it doesn't make any sense to just consider what the tax rate is, instead you have to think about fixed costs (health care, housing, food, transportation, ...), deduct that from your pre-tax pay, and you're left with your effective taxation as it were.

Administrative changes in the government can increase your taxes but have the effect of increasing your take-home pay, that's effectively what Sanders is proposing.

There's no flaw in this reasoning, on the contrary you seem to have the fundamental flaw in your reasoning of assuming that the only way for the government to save you money is to reduce your tax rate.

The savings comes from no longer paying for private insurance which is currently extremely expensive

The single payer is the taxpayer vs. the current model where you have a split between rate-payers and employer/medicare/medicaid.

People who are paying insurance premiums and taxes currently put money in two areas we'll call 'insurance' and 'tax' for convenience sake (and because it accurately reflects reality). The money in the 'insurance' area goes toward paying private medical costs. If those private medical costs disappear and are shifted to public costs under a single payer plan, they don't go away, merely move under that other column. From then on, no money need be put into the 'insurance' area. Yay! But now, the 'tax' area has to pay out more since it took on those costs so much of the money that would have been put in the 'insurance' area must be put over in the 'tax' area to cover the medical costs that have not disappeared but been recatagorized in terms of what pool it is paid out of. Even if those private medical costs are halved somehow, saving the payee money in the process, the 'tax' area would still need to be bolstered to handle the additional burden. Thus, higher taxes even though overall money is saved.

There's a very simple answer: the middle class pays very low income taxes in America. Nearly all of the income tax burden is on the top 25%. If you want to shuttle over half the population into a new single payer health insurance system, they're almost all going to be a (big) net drain. It's an inherent consequence of a highly progressive tax system.

Your typical middle class single person is now spending $300 to $400 per month on health insurance (employer sponsored is closer to $100 per month, but that's merely subsidization), and you want to shift them into single payer, then you have to recover that $300 to $400 via taxation.

The median in the US has an effective income tax of about 3% to 5%. Put another way, putting all of that toward their new single payer insurance, wouldn't come close to covering how much they'll cost you (and that's before getting into family cost structures).