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In which Hank does his best to cover the tax plans of Hillary Clinton and Bernie Sanders in a video that should really be much longer. In many ways, these are two plans that almost shouldn't be compared. Obviously, Bernie Sanders' biggest tax increases are contingent upon a massive change to the U.S.'s healthcare system that would free up a huge amount of revenue for a lot of Americans.

And, of course, neither candidate has a great chance of passing any significant legislation if the state of Congress remains the same. But I am looking at these plans externally from the current political climate, and doing my best to simply explain them with as little opinion as I could muster.


Bernie Sanders Tax Plan

Hillary Clinton Tax Plan

Comparing Candidate Tax Plans

Where do tax revenues come from:

Tax Policy Center on the Sanders Plan:

Tax Policy Center on Major Candidate Proposals

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Good morning, John. Taxes aren't any fun.

Figuring out how much to pay isn't fun, filing a return isn't fun, being completely confused isn't fun, having less money isn't fun. But this video's gonna be fun! It's gonna be so fun. Oh man, you won't even believe it! It's gonna be great. Because instead of doing what everybody else does, and like, talk about candidates as if they are personified ideology and yell, we're just gonna talk about the tax plans of two people who want to be president of the United States of America: Bernie Sanders and Hillary Clinton.
But first, we do have to talk about the current state of taxes in the US a bit.

About 60% of taxes paid in the US are paid to the federal government. Another 20% to states, another 14% to local governments. We are only dealing with that first 60%. That 60% comes from mostly four places: 37% comes from ordinary income tax, 33% from payroll tax, 11% from corporate tax, and 5-10% from capital gains tax.

Quick note! Pause if you wanna read it!

Ordinary income tax is a percentage tax that you pay on the money that you get paid. Here are, as of April 2016, the current tax brackets.

The phrase "tax bracket", though, is confusing. It makes it seem like if your income reaches a certain level, all of your income gets lumped into the new bracket, and you pay this higher tax on everything. That is, in fact, not how it works. Everyone pays the same amount of tax for the first $18,000, and so on. Like this here hypothetical person who had $250,000 of income. They only pay the 33% tax on this last $20,000. This hunk here is taxed at 28%, this next hunk at 25.

This is what we call marginal tax rates. It's a term. Just forget it. Who cares?

Hillary Clinton has a plan. It's very simple: just keep everything the same, except add one new tax bracket for all income earned over $5 million. So whatever one person earns over $5 million, instead of being taxed at 39.6%, it gets taxed at 43.6%.
Bernie tax plan--gotta spend a little more time here because there's more going on. Everybody pays an extra 2.2% that goes to helping create a single-payer healthcare system in the US, and the tax brackets are moved around a bit and new ones are added for between $500,000 and $2 million and between $2 million and $10 million and over $10 million. Simple enough.

We spend a lot of time talking about income tax, and for good reason. It's the money we use to run the government. But there's this other kind of tax called payroll tax. Payroll tax is basically income tax, it's just paid for by both you and by your employer. If you don't have an employer, you pay the whole thing; and when that happens, you stop calling it payroll tax and you start calling it self-employment tax. But it's the same thing.

Though the costs of payroll taxes are paid for by both you and your employer, they are taxes on your income, and so they are an income tax. But they are weirdly invisible. They're either withdrawn from your paycheck before it even gets to you, or, even more invisibly, they're paid for by your employer and you just don't know that that's happening. 

I am an employer of employees, and for every person I have, there are a bunch of taxes that I pay. So if they're making $40,000/year, even before any of their taxes get taken out of their paycheck, I'm actually paying $46,000/year for that employee.

Payroll taxes go to pay for specific things, and they're things that we all like. I mean, I hope so. One of them is the medicare payroll tax. It just has two tax brackets: above and below $250,000. And social security, which is a little more complicated. Get ready.

social security is designed to compensate you after you retire based on the amount of money you earned throughout your career. But it will not compensate you for your income over a certain level. It just stops, and it says, "Okay, you're probably good enough, and we don't need to worry about social security for you, so we'll stop taking it out." That level is about $118,000, so at that point, you stop getting taxed social security payroll tax. It just stops happening. 

Clinton's plan, again, leaves all of this alone, while Sanders's plan does two important things. First, it raises everyone's payroll tax by an additional 6.2%--again, that money going to help fund a single-payer healthcare system in the US. Bernie's plan also reintroduces the social security tax after $250,000. So income between $118-250,000 still doesn't have that tax on it.

So that's it for ordinary income tax. That wasn't that bad. But in the US we also have a completely different system for taxing money that you made by buying something and then selling it later for a higher price.  Usually that thing is a stock on the stock market, also maybe bonds,  also maybe real estate. That kind of income, for complicated reasons, is taxed differently; and right now, the taxes on that kind of income are based on household income.

Hillary Clinton--this is gonna be a trend-- keeps this pretty much the same. Though she does raise the taxes on medium term investments, which are the kind of investments that generally more active stock traders do.

Bernie's plan starts out by adding that same 2.2% tax that we saw earlier to all capital gains income and then changes all capital gains income tax to the normal income tax level after $250,000 of household income.

And that is it for all of the actual taxes stuff. But we still have some more tax policy stuff to talk about. It's so fun.

Both Bernie and Hillary have the same plan as President Obama for limiting tax deductions taken by higher-income households. Hillary would create a $1,200 tax credit for caregivers and also give tax credits to businesses that set up profit-sharing programs and skills-training programs.

Bernie and Hillary both want to establish a tax on high-frequency financial trading, though the way they want to do it is different. And they also both want to leave the current corporate tax rate alone while trying to close some loopholes that US corporations currently use, like setting up their offices in tax havens, stuff like that. Their plans are different from each other, though, but I'm not going to get into corporate taxes. Cuz ugh.

But basically, you can see what's going on here. Hillary is leaving the tax code roughly the same, while Bernie is increasing taxes across the board, especially for people who make more than $250,000/year, which is about 1.5% of Americans. He's doing that mostly to create a single-payer healthcare system where the government becomes everyone's insurance company. It's basically medicare but for everybody. The revenue generated would also strengthen social security and pay people to go to college.

Now, all this is complicated because under Bernie Sanders, yes your tax rates would go up, but you are already paying a lot of money in your healthcare premiums probably. So while taxes would go up, the goal is that the average person would pay less money over the course of the year in both taxes and healthcare costs. We know that  publicly funded healthcare systems have been less expensive in other parts of the world, but we don't know whether that would be true in the US. The reasons why healthcare is so expensive in the US are incredibly complicated, so it's impossible to know whether these new taxes would be enough to pay for a universal healthcare system or if additional revenue would be needed.

There's some other criticisms of Sanders's plan. The non-partisan Tax Policy Center pointed out that the costs of starting a new business or growing a business would go up under this plan, possibly enough to significantly decrease economic activity. But then maybe having people not needing to worry as much about healthcare or retirement means that the economy is healthier. I don't know.

Now, if you're wondering why I spent a lot more time talking about Bernie's plan than about Hillary's plan, it's because Bernie's plan would involve far, far more change.  And while it's easy to have thoughts on which one of these plans seems better or even more moral in a quick gut check, it is impossible to know all of the effects of these tax plans; and smart, professional people who think about this for a living disagree all the time on which plan is the best.

In short, I'm now going to say something that you will never hear on cable news: as far as which one of these plans is the best plan for people of this and for the future of this country, I do not know. 

That wasn't so hard to admit. John, I will see you with your analysis of Ted Cruz's and Donald Trump's plans on Tuesday.