PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

12 Tax Increases (At Least) Proposed by Bernie Sanders

By at 4 March, 2020, 11:07 pm

Photo courtesy of Bernie Sanders for President (Facebook page.)

by Raymond J. Keating-

If you’re a self-proclaimed socialist running for president, then you’re probably going to be proposing a staggering expansion in the size of government, and with major tax increases to pay for it. That certainly is the case of U.S. Senator Bernie Sanders, an independent socialist seeking the Democratic Party’s nomination for president.

Among Sanders spending plans are:

●  Cancelling all student debt and making higher education free at all public colleges, universities and trade schools.

●  Guaranteeing “housing as a human right and to eliminate homelessness.”

●  Guaranteeing “universal childcare and pre-school.”

●  Eliminating all past due medical debt.

●  A so-called “Green New Deal” with government imposing a near-complete government overhaul of the U.S. energy system.

●  Expanding Social Security.

●  Imposing socialized medicine via “Medicare for All.”

…and, the list goes on and on.

Indeed, beyond spending programs, Sanders advocates other unprecedented government intrusions into the economy, such as government forcing corporations to hand over 20 percent ownership of their businesses and 45 percent of their boards to the “workers.”

Let’s consider the massive tax increases that Vermont’s senator would inflict to fund some of this anti-free-enterprise, anti-entrepreneur, anti-economic growth agenda.

A Wealth Tax

As noted on his campaign site, the wealth tax proposed by Sanders would be “an annual tax on the extreme wealth,” with the objective being “to raise an estimated $4.35 trillion over the next decade and cut the wealth of billionaires in half over 15 years, which would substantially break up the concentration of wealth and power of this small privileged class.”

This socialist – indeed, Marxist – rhetoric embraces class warfare meant to destroy wealth, and by doing so, destroy wealth creation. That means the destruction of economic opportunity up and down the income scale.

A Financial Transactions Tax

Specifically, Sanders proposes to place “a 0.5 percent tax on stock trades – 50 cents on every $100 of stock – a 0.1 percent fee on bond trades, and a 0.005 percent fee on derivative trades.” This is a dangerous, largely hidden tax that would drain enormous resources from the private sector. The Sanders campaign estimates it would raise $2.4 trillion over ten years – which would leave fewer dollars for investment in growth-generating, job-creating entrepreneurial ventures that push innovation ahead and serve consumers. The financial transaction tax would reduce the savings and investments of the average American whose retirement funds are invested in stocks and bonds.

Taxes on the Energy Industry

The Sanders plan looks to raise $3.85 trillion via energy taxes. That, of course, would mean the destruction of the oil and natural gas industry, including the small businesses that overwhelmingly populate the sector. But that actually is the objective of the Sanders plan, as stated, in part, to “fundamentally transform our energy system away from fossil fuel.”

Taxes on Lower Income Americans, Higher Taxes on Employers

Sanders would impose a 4-percent income tax on incomes over $29,000 for a family of four, and/or a 7.5 percent income tax paid by employers to help pay for his socialized medicine plans. As always, increased tax rates on income means draining resources from productive private-sector endeavors, in order to fuel inefficient, politically-driven government ventures, and reducing incentives for income-generating undertakings, such as working, saving, investing, and starting up, running and growing a business. For good measure, a government-run health care system inevitably leads to diminished quality of care, exploding costs, and government rationing care.

Higher Income Taxes on the “Wealthy”

The current top personal income tax rate is too high at 37 percent, but it’s far from high enough for Bernie Sanders. He would add rates of 40 percent (incomes between $250,000 and $500,000), 45 percent (incomes between $500,000 and $2 million), 50 percent ($2 million and $10 million) and 52 percent (over $10 million).

This would be the highest income tax rate (on so-called earned income) in the U.S. since 1969.

We need to be clear on the effects of higher income tax rates. Increased tax rates on income means draining resources from productive private-sector endeavors, in order to fuel inefficient, politically-driven government ventures, and reducing incentives for income-generating undertakings, such as working, saving, investing, and starting up, running and growing a business.

Cap on Itemized Deductions

The Vermont senator would cap all itemized deductions for married couples at $50,000. This is simply another revenue grab that raises effective tax rates on individuals and families.

Tax Hike on Capital Gains

Sanders would tax capital gains at the same rate as ordinary income, increasing the top rate from 20 percent to 52 percent. The capital gains tax arguably is the most destructive tax levied by government given that it is a direct tax on the potential returns of entrepreneurship and investment. Jacking up the capital gains tax to 52 percent – 55.8 percent including the ObamaCare tax – is a surefire way to secure less risk taking in the economy, and therefore, less economic, productivity, income and job growth.

Sanders capital gains tax rate would be the highest federal capital gains tax rate imposed since 1921. For good measure, it must be understood that since capital gains are not indexed for inflation, the real federal capital gains tax rate would be even higher.

Death Taxes

Sanders would reduce the exemption level for the death tax, and replace the current 40 percent tax rate with a series of higher rates – 45 percent (on estates between $3.5 million and $10 million), 50 percent (between $10 million and $50 million), 55 percent (above $50 million) and 65 percent (in excess of $500 million or $1 billion for a married couple).

After paying a lifetime of seemingly countless taxes, the tax man comes at death to inflict a major tax on total assets. Many small and family businesses never survive the death tax, while other entrepreneurs and investors waste resources on tax planning and avoidance schemes trying to limit the damage of such a levy. The death tax – which restrains investment, business development and economic growth, and pulls in few, if any, net revenues for the government – should be eliminated, but Sanders would make it more burdensome, including imposing the highest death tax rate since 1982.

Corporate Tax Hike

Sanders would increase the corporate income tax rate from 21 percent to 35 percent. The most pro-growth step taken in the 2017 tax legislation was reducing the corporate tax rate from 35 percent to 21 percent and making it permanent.  Sanders would wipe this out, and by doing so would reduce incentives for corporations to invest, while encouraging business activity to move into other countries.

No More Expensing

Sanders would eliminate expensing of business capital expenditures, and shift to “economic depreciation,” which, according to the Sanders’ plan, “partially offsets the tax advantage of investing in automation over labor.”

Sanders apparently views capital investment by business as being anti-labor. By this reasoning, we’d all be better off going back to pre-Industrial Revolution days. In reality, business investment spurs productivity, which in turn increases the earnings of American workers. Indeed, the reason why U.S. workers rank among the top earners on the planet is because they are among the most productive workers on the planet. If looking to reduce worker earnings, then reducing business incentives for innovation and investment would make sense.

Tax Hikes on Small Businesses

Under a Sanders presidency taxes would be raised on small businesses by: “Eliminating the 20 percent deduction on pass-through business income and requiring large pass-through businesses to be subject to corporate taxes.”

This would be a major tax increase for American small businesses. These measures would raise the top tax rate faced by many non-C-corp businesses from 29.6 percent to the current 37 percent rate, or to the Sanders rate of 52 percent; and/or simply eliminate pass-through options for many entrepreneurs. This major tax increase would reduce the ability and incentives for individuals to start up, grow, invest in and operate businesses.

Elimination of the Cap on Payroll Taxes

Sanders would eliminate the cap on payroll taxes, making all income above $250,000 applicable for taxation. Once more, as noted earlier, increased tax rates on income means draining resources from productive private-sector endeavors, in order to fuel inefficient, politically-driven government ventures, and reducing incentives for income-generating undertakings, such as working, saving, investing, and starting up, running and growing a business.

Conclusion

When politicians are completely devoid of knowledge regarding economics and history, the result can be an extreme agenda such as that being presented by Bernie Sanders.

On the Sanders campaign website, one page carries the title “How Does Bernie Pay for His Major Plans?” In reality, Bernie wouldn’t pay, but everyone else would – individuals, families, entrepreneurs, businesses and investors – with their earnings being handed over to politicians to redistribute as they see fit. That’s a recipe for economic stagnation and decline.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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