A sneaky change to the tax code cost taxpayers dearly

If there is anything certain beyond death and taxes, it is our reaction to death and taxes: sadness and anger.

This is especially true if the government sneaks in a tax increase in such a way that few notice.

Prepare for sadness and anger! At least some of the (currently skyrocketing) inflation that occurs each year will not be reflected in our federal tax brackets.

In 2017, as Congressional Republicans and President Donald Trump sought to make their massive tax cut plan less damaging to the federal coffers without hurting corporations or the ultra-rich, a dim light bulb said, “Hey, what what about chained CPI?

The CPI, or Consumer Price Index, is calculated by looking at the price changes of all kinds of goods and services. It’s been used to adjust taxes and benefits, like Social Security checks and federal tax brackets, for decades.

The chained IPC is different. He theorizes that when prices rise, consumers change – choosing, for example, to buy chicken instead of beef, or Schlitz instead of Samuel Adams, or smaller assault rifles. The measure first attracted attention about 15 years ago, when policy buffs sought to rein in Social Security spending.

No one shouted “Let them eat day cake!” but the idea that increases in Social Security benefits didn’t have to reflect ALL inflation was there. Even so, the chained CPI was never adopted to fix Social Security increases because seniors’ groups lobby fiercely, seniors vote compulsively, and members of Congress hate furious pleas from Aunt Ida.

And because “If seniors earn less money, they will simply eat less well!” is a terrible slogan.

But in the 2017 tax bill, chained CPI became the way to adjust income tax brackets, standard deduction and other arcane standards.

The standard deduction for a couple, from $24,000 in 2018, will increase from $25,100 in 2021 to $25,800 in 2022. The level at which income drops from 12% to 22% will increase from $81,050 to $83,550.

The increases prevent “bracket creep,” in which inflation, rather than real income growth, puts people in higher tax brackets and raises bills.

The slice limits, however, would increase further, and we would pay less, if they were still calculated on the traditional CPI. The Congressional Budget Office estimates the change will cost Americans about $134 billion in its first 10 years.

From 2001 to 2017, the total CPI was 46% and the total chained CPI was 40%, so the difference adds up. There are three issues with using chained IPC to define these changes:

  • It supposes a perpetual decline in the quality of life. What happens after 20 years of shifting food standards that began with a switch from beef to chicken – from roasted peanut dinners to light styrofoam-wrapped peanut snacks?
  • The chain-linked CPI is a measure unrelated to income. Putting yourself in a higher tax bracket because you’ll be buying a cheaper fishing rod is… gibberish.
  • That’s a sneaky snatch of $134 billion from taxpayers in a decade, and that number will only go up.

I could be wrong, of course. A thorough societal debate on the issue might have made me change my mind, and the chained CPI has plenty of supporters.

But we never had that debate. We just got a quiet change in the tax code based on the idea that every year, as prices go up, we will choose to live a little worse.

It may be true, but I hate that it becomes a government goal.

The opinions of columnist Lane Filler are his own.

Source link

Comments are closed.