The nearby table borrowed from our friends at Cornerstone Macro captures the magnitude of the tax increases on labor and investment income that Democratic presidential candidates are proposing. The top marginal federal tax rate on labor is currently about 40% including the Medicare tax.
Eliminating the ceiling for the payroll tax would increase that to above 50% including both the individual and employer shares of the increase. Including both is right economically because it captures the full cost of hiring an additional worker. The much higher top marginal rate for Mr. Sanders in the table is for his Medicare for All tax.
And that’s before the candidates’ proposed income-tax hikes. It’s also before state and local taxes, which in some states could bring the marginal rate north of 60%.
And that’s before the Democratic tax increases on investment income, specifically capital gains. All of the leading candidates want to tax capital gains at the same rate as regular income or higher, which hasn’t been the law since the top individual tax rate on income was 28% after the 1986 Reagan tax reform. Higher taxes on capital reduce investment, which means slower productivity growth and ultimately slower wage growth.
Meanwhile, Madison’s taxpayer supported K-12 district continues to plan for a substantial tax & spending increase referendum this fall.