ANALYSIS — The 2020 Democratic presidential candidates who’ve released last year’s tax returns thus far are well-off enough to represent less than one-fifth of the taxpaying public, with incomes ranging from $100,000 to $2 million.
But their experiences are probably typical of many voters in similar circumstances: married couples with young children tend to do well under the 2017 tax law, though it helps to reside in lower-tax states.
Gillibrand is married with two kids under age 17 and earned about $214,000 in 2018 adjusted gross income — or income after “above-the-line” deductions such as teacher expenses, self-employment taxes and student loan interest. She likely saw her household’s tax bill slashed about 20 percent from what it would have been under the old system, according to a CQ Roll Call analysis of the candidates’ tax returns.
On the other hand Booker, unmarried and childless with nearly $153,000 in AGI, saw a 17 percent tax increase in our analysis, using the Tax Foundation’s estimated 2018 bracket thresholds and other parameters under the old tax code.
And while the new law has been criticized as a giveaway to the rich, among the Democratic candidates the wealthiest generally got smaller breaks than the rest. In fact Sen. Kamala Harris of California, with $1.9 million in household income, is actually paying about 2 percent more tax than she probably would have before the 2017 law.
Sen. Elizabeth Warren of Massachusetts, who with her husband earned $846,000, got a roughly 2 percent tax cut. Sen. Bernie Sanders of Vermont with $561,000 in 2018 income, saw a bigger reduction, though still in single digits at 8 percent.
By contrast, we measured double-digit percentage reductions in taxes for Gillibrand, Sen. Amy Klobuchar of Minnesota, whose household income was about $338,000, Rep. Tim Ryan of Ohio, at $221,000, and South Bend, Indiana, Mayor Pete Buttigieg, with just shy of $153,000.
Gov. Jay Inslee of Washington had a lesser tax break, shaving about 0.7 percentage points off his effective tax rate, or the amount of tax paid on his household AGI of about $203,000.
Former Texas Rep. Beto O’Rourke released 10 years of returns, but not his 2018 filings.
SALT, AMT, child tax credit
The disparities can be explained by a number of factors in the 2017 law, including a new cap on state and local tax deductions, across-the-board rate cuts, expanded child tax credits, a major rollback of the alternative minimum tax and a nearly doubled standard deduction.
Gillibrand paid substantial state and local taxes in 2018, nearly $36,000, but she and her husband could only write off $10,000 of that under the new law. But the standard deduction increase, AMT relief, child tax credits and rate cuts more than offset the loss of “SALT” deductions and her four personal and dependent exemptions.
Gillibrand was also able to claim a new deduction for income from her book royalties, bringing her total tax cut to more than 20 percent, though that figure would have been about 14 percent even without the “pass-through” business deduction.
Booker wasn’t nearly as lucky: Even after donating a huge amount to charity relative to his income — $24,000 — the loss of SALT deductions was a real blow. He didn’t earn enough to take a big hit from the old AMT, which chiefly affected households earning between $200,000 and $500,000, and to a lesser extent up to $1 million, and disallowed SALT deductions. And no kids, no child tax credits.
Booker falls into one of the worst possible categories under the tax law: those earning between $100,000 and $200,000 in high-tax states like New Jersey, without children under age 17 qualifying for the tax credit. That’s the group that, based on IRS data, typically paid more in state and local taxes than the new $10,000 deduction cap, and was less likely to pay AMT because they didn’t earn enough.
Likewise, the chief culprit for Harris’ higher tax bill was the SALT cap. Her household’s itemized deductions dropped by more than two-thirds as a result, swamping rate cuts including a reduction in the top bracket from 39.6 percent to 37 percent.
Warren is another “one percenter” who didn’t make out as well on her 2018 taxes, though as noted earlier she and her husband saw a little tax benefit. She gets no relief from the AMT fix, since she would have paid too much regular tax to worry about it; earned too much to qualify for the pass-through deduction for her book royalties; and lost almost half her itemized deductions from the SALT cap.
Not quite as well off as Warren, Sanders appears to have fared better under the tax law, shaving about 8 percent off his 2018 bill. The biggest single reason appears to be the AMT rollback, which otherwise would have hit hard, as well as the rate cuts — Sanders’ marginal rate dropped from 39.6 percent to 35 percent.
Klobuchar was able to knock down her tax liability by some 12 percent due to the rate cuts, AMT relief and higher standard deduction, which eased the sting of lost SALT deductions somewhat.
The CQ Roll Call analysis isn’t as comprehensive as it could have been, because some tax returns were highly complex or left out information on deductions that were repealed in the 2017 law. For instance, both Sanders and Klobuchar had deductible unreimbursed job-related expenses in 2017, but that deduction no longer applies so they didn’t report such expenses.
In the case of Ryan and Buttigieg, they didn’t report itemized deductions because both claimed the higher standard deduction in 2018. But they included information on state and local taxes on their state returns, so using that plus information from their 2017 returns, we constructed what we think are plausible itemized deductions they’d claim under the old law if that were still in effect.
Since Ryan’s income didn’t change much, we assumed the same level of itemized deductions would have been claimed, with higher SALT deductions offsetting lower mortgage interest after an extra year of principal payments. Under that scenario, his household tax bill drops by nearly 12 percent, largely due to newly-available child tax credits for Ryan’s two kids.
Buttigieg gained substantially by taking the standard deduction, since his itemized total would be less; his household tax liability dropped by nearly 16 percent in our analysis. Indiana’s not a particularly high-tax state, ranking in the middle of the pack nationwide, according to studies by the Tax Foundation as well as WalletHub, a personal finance website.
Finally, Inslee isn’t affected much, as rate cuts offset a modest loss of SALT deductions — there’s no income tax in Washington state — and personal exemptions, which were repealed for all taxpayers starting in 2018.
Opposing tax cuts … mostly
All of the Democratic candidates serving in Congress at the time opposed the GOP tax cuts, and all have expressed interest in rolling them back should they be elected president — despite the potential cost to them personally.
Three of the candidates who’ve released returns — Booker, Harris and Gillibrand — have also signed on to legislation uncapping SALT deductions. The measure would benefit them all financially, including Harris, even though the bill would also move the top individual tax rate back to 39.6 percent.
Their campaigns didn’t respond to requests for comment. But it’s likely they’d point out that allowing full SALT deductions would benefit a substantial portion of their highly-taxed constituents as well: roughly one-fifth of tax filers in their states had average SALT deductions greater than $10,000 in 2016, the most recent year of IRS data available.
Most of those households earned more than $100,000, which is in line with Tax Policy Center estimates showing little benefit to lower-income households from uncapping SALT deductions.
Stephanie Akin contributed to this report.