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

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:

Fam­i­lyYearAdj GrossTax­ableBrack­etTaxEff Rate

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:

Lev­elIncomeTax­ableBrack­et8Tax9Eff Rate
Top 5%$230,030$200,04028%$43,06318.7%
60%$82,032$58,932n/a (table)$7,9169.6%
40%$52,697$29,597n/a (table)$3,5066.6%
20%$29,100$6,000n/a (table)$6032.0%

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:

Lev­elIncomeTax­ableBrack­etTaxEff Rate
Top 5%$230,030$185,19728%$38,90716.9%
80%$129,006$91,063n/a (table)$14,35611.1%

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. 

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