And then there were three.
The Democratic National Convention will be held July 13-16 in Milwaukee, Wisconsin. A record twenty-nine Democrats formally announced that they were seeking the Democratic presidential nomination. Fourteen of them withdrew in 2019. Four of them withdrew in 2020 before the Iowa Democratic caucuses on February 3 (Cory Booker, Julian Castro, John Delaney, Marianne Williamson). Three of them quit after the New Hampshire primary on February 11 (Michael Bennet, Deval Patrick, Andrew Yang). Three others suspended their campaigns after the South Carolina primary (Pete Buttigieg, Amy Klobuchar, John Steyer). And Michael Bloomberg and Elizabeth Warren withdrew after a poor showing on Super Tuesday.
The remaining three candidates are Joe Biden, Tulsi Gabbard, and Bernie Sanders.
Although each one of the candidates named above is a Democrat, they are all quite different. Regarding the candidates still in the race at the beginning of 2020, I note the following. Biden is a former senator and vice-president. Bloomberg is a billionaire, a businessman, and the former mayor of New York City. Buttigieg is the former mayor of South Bend, Indiana, and the first openly gay candidate for president. Castro is a former secretary of the Department of Housing and Urban Development. Delaney is a former member of the U.S. House of Representatives. Gabbard is an Iraq War veteran and a current member of the U.S. House. Bennet, Booker, Klobuchar, Sanders, and Warren are members of the U.S. Senate. Patrick is the former governor of Massachusetts. Sanders was elected as an Independent, and claims to be a socialist. Steyer is an investor and a philanthropist. Warren is a former university law professor. Williamson is an author and lecturer who ran for public office once before and lost. Yang is an entrepreneur who had never run for office before.
Although the Democratic candidates attacked each other mercilessly during their debates, there is one thing they all have in common that sets them apart from their Republican opponent, Donald Trump: all of them want to raise taxes.
The current incarnation of the tax code is the result of the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump on December 22, 2017, and taking effect beginning in tax year 2018. The TCJA, or Trump tax cut, kept the same number of tax brackets (seven), but changed them to 10, 12, 22, 24, 32, 35, and 37 percent. For tax year 2020, the top rate kicks in once a person makes $518,400 or more, or in the case of a married couple filing jointly, $622,050 or more. The standard deduction is $12,400 (single) or $24,800 (married). The TCJA eliminated personal exemptions, although there is now a $500 credit for each non-child. The Child Tax Credit is worth a maximum of $2,000 per qualifying child. The tax rates on long-term capital gains are 15 percent on income exceeding $40,000 (single) or $80,000 (married) and 20 percent on income exceeding $441,450 (single) or $496,600 (married). The estate tax rate is 40 percent, but only on estates valued more than $11.58 million (single) or $23.16 million (married). The Net Investment Income Tax (NIIT) taxes investment income at a rate of 3.8 percent on investment income exceeding $200,000 (single) or $250,000 (married). The TCJA lowered the corporate income tax rate from 35 percent to a flat 21 percent.
In addition to income taxes, there are two payroll taxes. The Social Security tax rate is 12.4 percent (split between employers and employees) on the first $137,700 of wages. The Medicare tax rate is 2.9 percent (split between employers and employees) on wages of any amount. The employee share increases to 2.35 percent on that portion of income that is exceeds $200,000 (single) or $250,000 (married filing jointly).
To sell their planned tax increases to the voters, all of the Democratic candidates have proposed raising taxes on corporations and “the rich.”
Nearly all of the candidates expressed support for raising the top rate back to 39.6 percent or higher, limiting deductions, taxing capital gains and dividends as ordinary income, expanding refundable tax credits, and raising the estate tax. Buttigieg, Klobuchar, Sanders, and Warren each want to impose the Social Security tax on wages that are more than $250,000. Sanders and Gabbard want to increase the Social Security tax rate. Biden and Bloomberg both proposed increasing the corporate tax rate to 28 percent. Klobuchar preferred a new rate between 25 and 28 percent. Buttigieg, Sanders, and Warren wanted the rate to go back up to 35 percent. Warren and Sanders also want to impose a wealth tax on “the rich” of 1 to 8 percent, depending on household net wealth.
There are a number of problems with these proposals.
Corporations don’t pay taxes; people do. The corporate tax burden is borne by shareholders through lower dividends and share prices, passed along to consumers through higher prices, and paid by workers in companies in the form of lower wages. The corporate income tax is just another government mandate that raises the cost of doing business. The tax burden of the corporate tax is ultimately borne by entities other than the corporations that are taxed.
“The rich” already pay the vast majority of the income taxes. According to the latest figures released by the Internal Revenue Service (IRS),
- In 2017, the top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent.
- The top 1 percent paid a greater share of individual income taxes (38.5 percent) than the bottom 90 percent combined (29.9 percent).
- The top 1 percent of taxpayers paid a 26.8 percent average individual income tax rate, which is more than six times as high as what taxpayers in the bottom 50 percent (4.0 percent) paid.
“The rich” are also punished through the phase-out of tax exemptions, deductions, and credits as their income rises. And not only do “the poor” pay little or nothing in income tax, they receive tax refunds from the government of money they never paid in, in the form of refundable tax credits.
Another problem with increasing taxes on “the rich” is that there are just not enough of them to satisfy the federal leviathan. If one looks at the total adjusted gross income from every tax return with an adjusted gross income of more than $1 million and then at how much the federal government spends in a year, it is evident that even if the federal government confiscated 100 percent of the earnings of every American who makes more than $1 million a year, it wouldn’t run the government for even five months.
The last problem with the Democratic proposals to raise taxes on corporations and “the rich” is what the increased government revenue is to be spent on: free higher education, expanding health care, fighting climate change, student-loan debt cancellation, expanding refundable tax credits, government-paid family leave, increasing welfare, and expanding Social Security — to name just a few. Since none of those things is authorized by the Constitution, the tax proposals of every Democratic candidate are dishonest and illegitimate.
Americans are overtaxed. The only tax proposals worth considering are those that reduce and eliminate taxes.
The post What All the Democratic Presidential Candidates Have in Common appeared first on The Future of Freedom Foundation.
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