Wealth and Taxes: The “Fair Share” Depends On Who’s Paying
Jim Geraghty chronicles how Bernie Sanders’ 2014 tax return reveal he and his wife took $60,208 in deductions from their taxable income. These deductions are all perfectly legal and permitted under the U.S. tax code, but doesn’t he rage against high earners paying a lower effective tax rate than blue-collar workers? Fair share and all? He saved himself thousands using many of the tricks that would be banned under his own tax plan.
Is This Bernie’s Fair Share?
With all of his itemized deductions, Sanders’s taxable income was significantly lower than it would have been if he had taken the standard deduction. The deductions left Sanders and his wife paying $27,653 in federal income taxes in 2014, on a joint income of $205,271 — an effective federal tax rate of 13.5 percent. That’s actually not his fair share at all.
According to the Tax Foundation, the average federal income-tax rate for a couple making $200,000 to $500,000 in 2014 was 15.2 percent. Millionaires and billionaires paid, on average, just more than twice as much of their income (27.4 percent) in federal taxes as he did.
Sanders has said those who can pay more should pay more. Deductions are not a justifiable reason for a wealthy person to pay a lower effective rate than someone who earns less. His web site declares, “We need a progressive tax system in this country which is based on ability to pay. It is not acceptable that corporate CEOs in this country often enjoy an effective tax rate which is lower than their secretaries.”
With such rhetoric, you might think that Sanders would be reluctant to take every deduction he possibly could. Yet he and his wife deducted $22,946 on home-mortgage interest, $14,843 on real-estate taxes, $9,666 on state and local income taxes, $8,000 in gifts to charity, $350 in gifts to charity other than by cash or check, $4,473 in unreimbursed job expenses, which according to tax law can include fees such as union dues and travel.
Bernie is supposedly against people itemizing their deductions to keep their taxes low. Under his tax plan, people making more than $250,000 per year — a bit more than he makes as a senator, but less than the $400,000 he would make as president — would have their itemized deductions limited to 28 percent of their income. The Sanders family’s own 2014 deductions amounted to 29.3 percent of their income.
The Sanders’ single largest deduction was for the interest payments on their home mortgages, but Bernie is against this. In a 1997 book and again in his 2015 autobiography, he called for raising nearly $35 billion in new taxes by capping it at the first $300,000 in home-mortgage debt. In a speech on the floor of the House in 1997, he portrayed the deduction as a welfare payment to billionaires: “[Republicans] don’t talk about a housing policy through the home-interest mortgage deduction, which allows billionaires to get checks from the government when they deduct the mortgage from their mansions.”
Today, Sanders and his wife own two homes. They own a four-bedroom, 2.5-bath home in Chittenden County, Vermont, purchased in 2009 for $405,000. They also own a one-bedroom town house on Capitol Hill, purchased in 2007 for $488,999. They have two mortgages on the latter property totaling $464,550. We don’t know precisely how much debt remains on those mortgages, but there’s a good chance it’s significantly higher than $300,000. Sanders may have once thought the deduction was an unjust giveaway to the rich, but he appears to have no problem taking advantage of it himself.
The Tax Policy Center found that biggest beneficiaries of the mortgage-interest deduction are people such as Sanders — wealthy by most standards, but not super-rich, living in areas with high real-estate costs. (Places with high real-estate costs often have high property or real-estate taxes, another big federal deduction. Some argue that allowing Americans to deduct their property taxes rewards localities that have high property-tax rates and punishes those that have low ones.)
The home-mortgage deduction has a smaller impact on the tax returns of the millionaires and billionaires. In the TPC study, a person making $1 million per year saw his average federal tax rate reduced by only one-tenth of one percent because of the deduction, while someone making between a $500,000 and $1 million per year saw a tax rate reduction of six-tenths of one percent. The biggest winners were those making $100,000 to $200,000 per year and those making between $200,000 and $500,000 per year: Both groups saw their tax rates reduced by 1.2 percent because of the deduction.
What Sanders did, using every option and advantage available under the tax code to minimize his tax payment, is a normal practice for many Americans rich and poor. Bernie has decried many of these tax breaks that he himself took advantage of though. Hillary and Bill Clinton made almost $28 million last year and paid about $10 million, or 36%, in federal taxes. They gave just over $3 million to charity in 2014, about 11 percent of their overall income. “Fair share” depends upon who’s paying.