By Richard Rubin 

Democratic presidential candidate Bernie Sanders's tax plan is just as revolutionary as he promises--raising federal tax revenue by 34% and cutting the after-tax incomes of the wealthiest households nearly in half, according to an analysis released Friday.

Mr. Sanders's plan, designed to pay for a significant expansion of government spending, is the largest and most dramatic of all the presidential candidates' and the least likely to find support from either party in Congress. That is saying something in a year when Republicans are proposing unprecedentedly large tax cuts and structural changes.

Mr. Sanders's proposals would increase federal taxes by $15.3 trillion over the next decade, according to the Tax Policy Center. Mr. Sanders concentrates his tax increases on high-income households, which would face sharply higher levies on their wages, business income, capital gains and estates, as well as more limits on their deductions. The top 0.1%--those with incomes of $3.7 million under an expanded definition--would pay an average federal tax rate of 63.7% in 2017, up from 34.2%.

The middle 20% of households would face an average tax increase of $4,692 in 2017 and lose 8.5% of after-tax income. The lowest-income households would lose, too, but they would come out even by 2025.

"Sanders is clearly betting that people are willing to pay for his expansive new welfare state," said Leonard Burman, director of the Tax Policy Center, who was a Treasury Department official under President Bill Clinton. "There's a giant tax increase, mostly on the rich, but everyone would pay more."

In a statement released late Friday, the campaign said the analysis was wrong and incomplete because it didn't include the benefits Americans would get from Mr. Sanders's proposals for single-payer health care, expanded Social Security benefits, free public college tuition and better U.S. infrastructure.

"The Tax Policy Center chose to analyze Sanders's tax plan in a vacuum without taking into account the savings the American people would gain under his Medicare-for-all plan. That is misleading," said Warren Gunnels, the campaign's policy director. "Without estimating the benefits American people would gain under these initiatives, the Tax Policy Center's report is inaccurate and one-sided."

The top effective marginal tax rate on wages would increase to 64.2% from 43.1%, and Mr. Sanders would raise the top rate on capital gains to 62% from 24.1%, while making it harder for wealthy individuals to defer or avoid capital gains taxes. He also would limit U.S. companies' ability to defer U.S. taxes on their foreign income, impose new taxes on financial transactions and create a new tax on carbon, with a rebate for consumers.

New payroll taxes on employers and on all workers would pay for what Mr. Sanders calls Medicare for all and for paid family leave. The $15.3 trillion estimate appears to leave Mr. Sanders several trillion dollars short of paying for his promises, and that is assuming the tax increases don't inhibit economic growth.

The center said Mr. Sanders's tax plan "would substantially reduce incentives to save and invest in the U.S." and would discourage lower-earning spouses from entering the workforce.

Mr. Sanders's plan stands in contrast with that of his Democratic rival, Hillary Clinton. She proposes raising taxes on high-income households to pay for new spending and is offering targeted tax breaks and a forthcoming tax cut for middle-income households. For every $1 she is proposing to raise in taxes, Mr. Sanders wants to raise $14.24.

"Her experience in government and in politics for a long time tells her that those are the kinds of things she could get done. Bernie Sanders clearly wants to change things radically," Mr. Burman said.

The center has now completed its estimates of the tax plans of the five leading presidential candidates--the two Democrats, along with Republicans Donald Trump, Ted Cruz and Marco Rubio. The center hasn't analyzed Republican John Kasich's plans because it lacks sufficient detail. In the general election, Mr. Burman said, the center will attempt to analyze the economic effect of tax changes along with the combined effect of tax and spending proposals.

The center is a joint project of the Brookings Institution and the Urban Institute, and it used a bipartisan panel of reviewers to examine the Sanders plan.

Its economists are generally skeptical of the idea that tax changes can prompt major economic responses. But Mr. Sanders's plan is so big that it might be different, the report said.

"The proposed tax changes on both labor and capital income are very large compared with any tax policy changes since World War II, so the empirical evidence of relatively small effects cited earlier may not apply," the report said. "The lack of prior historical experience for changes of this magnitude makes the macroeconomic effects of Sanders's plan especially uncertain, but there is a risk that the very large tax increases could significantly weaken the U.S. economy."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

March 04, 2016 22:17 ET (03:17 GMT)