I Like Bernie Sanders (but we still need to make money) — Part 1

Acting as everyone’s favorite, outspoken grandfather full of vigor and old-timey energy, Bernie Sanders has captured the attention of the entire country. Similar to Trump (in a weird way), he has gone after traditional politics and challenged the status quo. In my opinion, the biggest difference between Sanders and the rest of the field has little to do with his proposals: people simply like him. He’s trustworthy, selfless and in politics for the right reasons (at least, it appears to be the case). Not everyone thinks his concepts are feasible, but millions of citizens have turned into diehard supporters. And I completely get it.

I’m just going to work off his website (https://berniesanders.com/issues/) and dive into the first issue.

Income and Wealth Inequality

“The reality is that since the mid-1980s there has been an enormous transfer of wealth from the middle class and the poor to the wealthiest people in this country. That is the Robin Hood principle in reverse. That is unacceptable and that has got to change.”

Yes, it does seem as if something is wrong when “…the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.” There are roughly 320 million people in the United States, and (according to taxfoundation.org) approximately 138 million people file federal tax returns. So the top one-tenth of one percent is equal to roughly 138,000 people. This figure definitely does not add up to a number of votes needed to win a presidential election, so what drives a person to vote against Sanders’ concept to solve this issue?

Last time I checked, my friend living in his $200,000 house has zero personal motivation to see any billionaire make more money. When discussing this issue with millionaire friends, it’s clear their life is not going to take a cataclysmic hit if their income is taxed another few points. So, what’s the deal?

First, it’s probably important to understand what the top whatever percent actually means. According to the Tax Foundation (taxfoundation.org), in 2013 (this was the most up-to-date information from a November 2015 article) the top 10 percent reported income of at least $127,695, the top 5 percent reported income of at least $179,760, the top 1 percent reported income of at least $428,713, and the top 0.10 percent reported income of at least $1.86 million. Based on this, I think it’s easy to understand that those in the top 5 to 10 percent are making a great living, but it’s at a level where every dollar still makes a big difference. If you’re a family of four living off $180,000, that number gets knocked down to about $138,000 after federal taxes. I live in Michigan, and I work in Detroit, so let’s back out 4.25 percent for the state and 2.40 percent for the city. This leaves you with roughly 129,000 or $10,750 per month. If you’re socking money away for savings, vacation, home improvements, etc., let’s say 20 percent, this number drops down to approximately $8,600. After factoring in mortgage payments, real estate property taxes, cable bill, day care, food, booze, piano lessons, gas to soccer practice four times per week, etc., this number shrinks quite a bit. Now, I understand millions of people would love to be in this position. My point is that the top 1 percent aren’t all flying around in first class drinking Johnnie Waker Blue Label while discussing the latest drama at the country club.

So, let’s dissect the top 1 percent.

If you’re a single woman banking 450,000, you’re doing phenomenal. Let’s back out the federal taxes and you’re still doing phenomenal at roughly $330,000. Let’s assume, again, you work in Detroit. You’re now at approximately $308,000. Let’s say you’re as responsible as the top 5 percent, and you continue to save 20 percent. After savings, you’ve arrived at $246,000. If you can live on a budget of $10,000 per month, you’ll be a millionaire in eight years or so. Congratulations!

So, the 1 percent are doing well. But, is this a bad thing? If you went to college and worked twenty years in order to attain this income level, don’t you think you deserve it? What if you’re in sales and you have a few kickass years? Should you pay more in taxes even if you know you’re average income over thirty years will never fall into the 1 percent? What if you own a company and every expense is filed under your personal income tax? Don’t you want to hire more people to grow and invest in additional resources?

These are questions most politicians (and anyone with a public voice for that matter) fail to address. My friend who owns his $200,000 home doesn’t agree with raising taxes on the rich because it will affect him, he doesn’t agree with the concept because it penalizes success and it could prevent some businesses from reinvesting in themselves.

With that said, let’s get into the folks raking in $1.86 million. For this analysis, I’m going to turn to Vox’s breakdown from January (feel free to check out the original article). Now, I understand this story received a lot of criticism because it makes a number of assumptions. The biggest assumption deals with the payroll tax. (For a counter argument, I encourage you to visit The Nation’s response.) Vox makes the argument that employers will, theoretically, pass on the additional tax to its employees. Just trying to use my own common sense, if I hire ten people, and my tax liability for each individual increases substantially, I would have to analyze whether or not I could keep all five employees hired without any change in revenue. If I had to let go of a salesperson, this could actually result in lower revenue to the company. If I’m in a position to grow, maybe I can get away with paying out a lower salary in order to offset the additional tax? Yes, it’s a theoretical argument, but it’s a very real one.

With that in mind, Vox explains Sanders’ tax proposal would result in someone earning above $2 million to have a federal tax liability equal to 73.00 percent or 50.20 percent if we back out the payroll tax. Let’s just think about that for a second. Even if the figure in actuality is closer to 50.20 percent, handing over half of your income (at any level) is significant. If we apply the same concept for the one percenters outlined above (but at a greater scale), I’m not sure how a tax increase leads to the ability for individuals or companies to hire more people.

When I hear Sanders talk about the billionaire class, he’s referring to roughly 540 people. People at that level make money in a very different way compared to those who have an annual income of $2 million and less. Because capital gains, asset appreciation and inheritance is such a bigger factor for the wealth of the top 0.00039% (aka billionaires), the income tax argument (for both wealthy individuals and corporations) needs to take into consideration the larger picture of how employment functions naturally. If the goal is to truly reduce unemployment in a sustainable way, increasing the cost to conduct business seems counterproductive.

With that said, I understand the frustration of seeing certain individuals receiving enormous payouts (tens of millions of dollars) in return for sloppy work. The “golden parachutes” we read about from financial institutions seem very excessive at times. But, at the end of the day, this is an emotional argument. I’m a firm believer in receiving market pay for positive results, but, what blows my mind, is learning about some receiving extraordinary pay without taking on any of the risk. This is where I start to feel the Bern.

It was hard to stop writing this one, so I broke it into two separate parts. Part 2 is forthcoming.