For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
June 17 — Tax hikes on the rich to the level proposed by Democratic presidential candidate Bernie Sanders would have been “unsustainable” and prompted more cases of tax evasion, an analyst said.
Sanders's plan was a transparent and straightforward proposal to increase taxes on the U.S.'s wealthiest citizens, said Leonard Burman, the Robert C. Pozen director of the Tax Policy Center. The strategy called for raising top tax rates on capital income to 64 percent and on labor income to more than 70 percent, he wrote in a June 16 blog.
“The giant tax increases on capital are the most problematic part of Senator Sanders’s legacy,” Burman said. “While they would make the tax system much more progressive, they would also impose very large economic costs.”
Burman noted that while it is pretty clear that Sanders won't be the Democratic Party's nominee because Hillary Clinton has locked in a majority of delegates, some of his campaign ideas could outlive his presidential run.
In his blog, Burman said capital is highly mobile, making it harder to tax.
“Rates as high as 64 percent would fuel illegal tax evasion—such as not reporting sales of foreign stock—and the growth of legal but inefficient tax shelters,” he said.
The low after-tax return to successful entrepreneurial investment that his plan would have imposed could also discourage risk taking, Burman said.
And even though not included in revenue estimates, he said, “it’s a sure bet that some investors would avoid selling assets and realizing taxable gains in hopes that a future president would lower capital gains tax rates to levels closer to historical norms.”
As a self-proclaimed democratic socialist, Sanders could learn a lesson or two from Scandinavian countries like Sweden, Norway and Denmark, Burman said. The presidential hopeful used their “expansive social safety nets” as a model for his spending agenda, he said.
They understand “that the only plausible way to raise enough revenue to finance government spending that averages almost 50 percent of GDP is with a very efficient tax system,” he said.
Those nations rely heavily on regressive taxes—for example, imposing a 25 percent value-added tax on consumption, he noted. They also levy a dual income tax, combining “a steeply progressive tax on labor income with a low flat-rate tax on capital income.” At the same time, they fix higher payroll taxes than the U.S., he said.
Sanders's capital income tax rates would have been very high even by international standards, Burman said.
To contact the reporter on this story: Allyson Versprille in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Brett Ferguson at email@example.com
Burman's June 16 blog is at http://src.bna.com/f2a.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)