Sanders's income tax increases are bigger than we thought
Bernie Sanders has to date touted his income tax plan as setting a top rate of 52 percent. But per the details the campaign supplied to TPC, it actually works a bit differently from that. Sanders actually eliminates the top three income tax brackets (33, 35, and 39.6 percent), leaving 28 percent as the top rate. He then adds surtaxes of 9, 15, 20, and 24 percent on top of the regular income tax.
This might seem like a technical distinction. It's not. That's because the surtaxes apply not to taxable income, but to adjustable gross income (AGI). If Sanders had merely increased the top rates, taxpayers would have still been able to enjoy their mortgage interest deductions, their charitable deductions, their state and local tax deductions, and so forth. But AGI measures income before you take deductions into account.
So Sanders's plan reduces the benefit rich people can gain from itemized deductions, including the charitable deduction. Effectively, he puts a 30.2 percent cap on their value: the 28 percent top rate, plus his 2.2 percent health care income tax. Interestingly, this is actually a somewhat more modest restriction than Obama or Clinton has proposed. They want a 28 percent cap on deductions by the rich, ever-so-slightly smaller than Sanders's 30.2 percent cap.
Sanders would also subject charitable gifts to capital gains tax. So if I were to, say, buy a painting for $200 dollars and then donate it to a charity when it's worth $200 million, under Sanders's plan I would be on the hook for tax on most of that gain. Under current law, that donation would be tax-free.
This helps explain why Sanders's proposal is so effective at raising revenue from the richest Americans. He's not just raising their tax rates; he's eliminating the best methods they currently have for minimizing their taxable income.
