Lies, damn lies, and thirteen and a half percent statistics

Bronze Coast Alameda , CA
California US

It’s unclear why anyone is surprised by Bernie Sanders’ tax return. The outrage appears entirely manufactured built on distortions and an assumption that no one will check facts.1

Senator Sanders’s tax filing is simple, easy to read, and contains no surprises at all. His income is close to exactly what one would expect2 and his deductions are all common, or should be.3

Yet still we see posts like this:

Miller (a political reporter for Time) may not have intended this to be misleading, but it has certainly been picked up by others and used to condemn Sanders. My reply is here:

It depends upon what the meaning of the word is is.

Not to get Clintonian about the meaning of words but there are at least a couple of ways to interpret the word «claim». In the context of tax deductions, it’s usually used to indicate that the amount cited has been taken off of one’s income figure.

Sanders listed $8,946 on his 2106-EZ under Meals and entertainment expenses, which translates to $4,473 of deductible meals and entertainment expenses. That seems entirely plausible for a US Senator. Sure, it’s $25/day on average, but he’s a US Senator. His job keeps him away from home and in a bunch of meetings many of which are probably over meals. It’s on the high side of what I would have guessed, but not so much that it raises my eyebrows.

More importantly, this deduction is limited by one’s income. Between that $4,473 and $204 for tax preparation fees, The Sanders family got a deduction of a whopping $572. You can quibble all you like about meals and entertainment but if we remove that from the filing it changes the amount of tax he would have paid by $143.4 I don’t care how you spin it. $143 is no scandal.

Comparing effective tax rates

Others seem to be upset at the effective tax rate paid by the Sanders family. This tweet is chosen because it is one of the more polite ones, and actually includes some statistics to compare:

This is unconvincing. It’s not a secret that we have a progressive income tax. We always5 have. Let us also not forget that one’s tax bracket and one’s effective tax rate are not the same thing. Bernie is in the 25% tax bracket. Joe Biden is in the 33% tax bracket. Barack Obama is in the 33% tax bracket. Those three all have six-figure incomes; the Bidens and Obamas each had approximately twice as much income as the Sanders family did. Both Mitt Romney and Hillary Clinton, each raking in eight figures, are in the top marginal 39.6% tax bracket.

Let’s take a look at those numbers:

Family Year Adj Gross Taxable Bracket Tax Eff Rate
Sanders 2014 $205,271 $140,994 25.0% $27,653 13.5%
Biden 2015 $392,233 $334,006 33.0% $91,456 23.3%
Obama6 2015 $463,065 $290,640 33.0% $81,472 17.5%
Clinton 2014 $27,946,490 $22,787,248 39.6% $9,981,350 35.7%
Romney 2011 $13,696,951 $9,007,709 39.6% $1,935,708 14.1%

Just to demonstrate the progressive nature of US taxes and to put Bernie’s taxes into rather skewed focus, let us compare those numbers to the tax rates which would be paid by families earning at the 20%, 40%, 60%, 80%, 95% income levels in the US. We’ll assume each is a married couple filing jointly, both born before 2 January 1951 (like Bernie and Jane Sanders) with no dependents (like all the above except for the Obamas.) We’ll also assume that the only itemizable deductions are: 4% of income to charitable contributions (like Bernie), the prior year’s Vermont State income tax.7 It ain’t realistic, but there’s a point to be made:

Level Income Taxable Bracket8 Tax9 Eff Rate
Top 5% $230,030 $200,040 28% $43,063 18.7%
80% $129,006 $105,906 25% $18,064 14.0%
60% $82,032 $58,932 n/a (table) $7,916 9.6%
40% $52,697 $29,597 n/a (table) $3,506 6.6%
20% $29,100 $6,000 n/a (table) $603 2.0%

Keep in mind that these tables represent the effective rates to compare without any deductions for unreimbursed meals and entertainment, for the interest on a home, or for a deduction for property tax paid. One of Bernie’s itemized deductions was $14,843 for state property tax on his home. It’s really hard to imagine anyone expecting Bernie to pay tax on tax paid, but Vermont also has a property tax system that adjusts on low income. Figuring that out is way beyond the scope of this post, but let’s look at those top two brackets:

Level Income Taxable Bracket Tax Eff Rate
Top 5% $230,030 $185,197 28% $38,907 16.9%
80% $129,006 $91,063 n/a (table) $14,356 11.1%

It’s a long way to make a small point really. But the small point needs to be made to counter a bigger insinuations, which are that there is anything at all suspect in the Sanders’ 2014 tax return, and that there is some kind of equivalence between Bernie paying an effective rate of 13.5% and Mitt Romney paying an effective rate of 14%.

There’s also the payroll tax

It’s a special case because Bernie works for the government and has a legislatively-mandated rather than market-driven salary. Also, the idea that the Federal Government is paying itself taxes on Congressional salaries is a little weird.

The point is still valid: Bernie’s real effective tax rate is significantly higher than 13.5% because his employer paid payroll tax, which in the case of private employers would be part of the real dollar figure the employer bases hiring and salary decisions on. In any case it is money the Federal Government pays for Bernie.

My off-the-top-of-my-head guess is that Bernie’s employer paid about $9,100 in payroll taxes on behalf of Senator Sanders. That brings his actual effective tax rate up to 17.9%.

That number should only be compared with Romney’s 14.1%. None of Romney’s income was salary, so there was no employer to pay payroll taxes for him. Barack Obama and Joe Biden both collect a salary and so their real effective tax rate would have to be adjusted similarly for any meaningful comparison. The Clintons’ return contains a mix of salary and other kinds of income, and I’m not running those numbers either.

Perhaps this ought to be made clearer

  • 13.5% is not out of line with what other people would pay at the Sanders’ income level.
  • There are no obscure «loopholes» in the Sanders’ deductions
  • 14.1%, for someone whose income was roughly 70 times higher, does seem out of line.

None of this is to say that Mitt Romney did anything wrong in his 2011 filing. It’s not even a question worth asking. His return was compliant within the law. The only question Romney’s return legitimately raises is whether a system in which a family making $14,000,000 in a year ought to be paying a rate similar to a family making $200,000 in a year.

There are much bigger questions about taxes which ought be answered. This is not a question about taxes. The claim that it is hypocrisy to complain that a person paying 14.1% on $14 million in income and then fail to raise the same complaint about another person paying 13.5% (or really 17.9%) on $200 thousand — that is at best intellectual sloppiness of the kind that should preclude the person making such a claim from being taken seriously. At worst it should paint that person as a liar. I’m looking at you, Jim Geraghty.10

If there’s anything scandalous contained in Senator Sanders’s tax return it’s that his tax filing (he’s married, his wife has a small business, and he owns property he’s paying interest and taxes on) is simpler than mine. I own no property and earned substantially less than he did. My tax burden was substantially lower, but his paperwork burden was much less. That’s true because he gets his health plan directly from the government. I bought my health plan through Covered California, one of the PPACA11 insurance exchanges.

The problem with bringing that point up is that it cuts both ways. If you’re an anti-Obama partisan or even just a reasonable person interested in evaluating PPACA on its merits (I know, to some that’s a very fine distinction) you might find it troubling that PPACA adds substantial complexity to the tax returns of those people it is supposed to help. However, if you’re a Bernie supporter the excess tax complexity is an argument in favor of Bernie’s single-payer healthcare plan.

Those are arguments that can be had on their own merits, but they have nothing at all to do with whether Bernie’s tax returns show anything scandalous, shocking, surprising, or even out of character. They do not.

  1. Which I’m sad to say is a good assumption. ↩︎

  2. Congressional salaries are mandated by law and Jane’s income isn’t a lot. ↩︎

  3. It’s troubling how many people don’t realize that they can deduct their state taxes and not be twice-taxed on the same income. For some it may not be worth it, because it means itemizing deductions instead of using the standard deduction, but everyone ought to know they can↩︎

  4. On the 1040 at line 40 (Itemized deductions) change $56,377 to $55,805 and therefore on line 43 (Taxable income) change $140,994 to $141,566. The tax bracket (Married, filing jointly, at least $100,000 but not over $148,850) does not change. Using the standard formula in the 1040 instructions, $141,566 × 0.25 - $8,287.50 = $27,104 instead of $26,961. ↩︎

  5. Since Lincoln’s Revenue Act of 1861 anyhow. That’s not exactly «always» but the United States has never had a non-progressive income tax. ↩︎

  6. Note that the Obama family, unlike the others, included dependent children. ↩︎

  7. Assuming that the previous year’s return used the standard deduction because like many states Vermont requires adding back deductions for state taxes. We can’t use that number prior to figuring out what it will be. ↩︎

  8. Below $100,000 tax is figured from tax lookup tables at the end of the instruction booklet. ↩︎

  9. None of the hypotheticals required the Alternative Minimum Tax or qualified for the Earned Income Tax Credit, assuming no dependent children. ↩︎

  10. Geraghty is the author of the National Review article Bernie’s Tax Hypocrisy. If the fact of the comparison weren’t enough, his article contains the flat-out assertion that Sanders took a $4,473 deduction for unreimbursed job expenses. ↩︎

  11. Patient Protection and Affordable Care Act. No, I’m not going to call it Obamacare. ↩︎