How Would Bernie Sanders Change Your Taxes?

Though Hillary Clinton just secured the delegates needed to become the presumptive Democratic presidential nominee, Bernie Sanders isn't ready to give up the fight. One of Sanders' major selling points is his tax reform plan -- a plan that's certainly been met with mixed reviews. Here are some key features of his proposal.

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Higher income tax rates for the wealthy

At the core of Sanders' tax reform is the notion that higher earners simply don't pay enough taxes, so to this end, Sanders proposes replacing the country's top three income tax rates (currently 33%, 35%, and 39.6%) with higher progressive rates. The following table illustrates how Sanders' changes would impact Americans at various earning levels:

TABLE BY AUTHOR. DATA SOURCE: BERNIETAX.COM. Current numbers are based on 2015 tax brackets for filing status of married filing jointly.

Lifting the Social Security income tax cap

As of 2016, Social Security taxes are only applied to an earner's first $118,500 in income; anything above that is exempt from Social Security taxes. What this means is that someone earning $118,500 a year pays the same amount of Social Security taxes as someone earning $5 million. Sanders is seeking to apply Social Security taxes to all income above $250,000 -- a move that would impact the country's top 1.5% of earners.

Income-based Medicare tax

Under Sanders' "Medicare for All" plan, Medicare would no longer be reserved for the elderly and disabled, but rather would be made available universally. To pay for this benefit, Sanders is proposing a 2.2% income-based healthcare premium to be paid by individual American households. Currently, a family of four earning less than $28,800 per year and taking the standard deduction would be exempt from this tax.

Limiting tax deductions for the wealthy

Sanders feels strongly that the U.S. tax code offers too many breaks for the wealthy. As such, he's seeking to replace these tax benefits with a universal provision that limits wealthy individuals' savings to just $0.28 per dollar in tax deductions.

Taxing investment gains

Right now, most taxpayers in America pay a lower rate for long-term capital gains and qualified dividends than they do for ordinary income. Sanders proposes that capital gains and dividends be taxed as ordinary income for households earning over $250,000.

Progressive estate tax

Sanders is pushing for a progressive estate tax that would impact Americans who inherit over $3.5 million. Because the first $3.5 million of an individual's estate would be exempt from this tax, this would only impact the wealthiest 0.3% of Americans, leaving things status quo for the remaining 99.7%. In addition, Sanders advocates a 10% billionaire's surtax, which would impact an estimated 530 Americans. The surtax would eliminate current loopholes which allow billionaires to avoid taxes via dynasty trusts.

The right solution?

While many celebrate Sanders' insistence on making the rich pay their fair share, critics of his plan argue that the tactic of targeting only the wealthy has several flaws. First, though the wealthy do pay proportionately higher taxes than most Americans, the majority of our country's tax revenue comes from middle- to upper-middle-class households. Secondly, if tax breaks for the wealthy were taken away, higher earners might jump aboard the tax-exile train and move overseas in an effort to protect their assets. Some might even take their businesses with them, potentially resulting in job losses. Finally, by taxing capital gains and dividends at a higher rate, Sanders' plan effectively discourages investing. And given the number of Americans who struggle to save for retirement, that's not a good message to send.

Regardless of Sanders' fate in the upcoming election, his proposal has definitely given Americans food for thought. Even if 2016 doesn't turn out to be his year, this may not be the last we'll hear from Sanders in his quest for a more equitable tax system.