A new addition to the Trump tax plan may end up pushing middle-class Americans into higher tax brackets faster than before, resulting in tax increases at a faster-than-expected rate for those in those same people.
The main catalyst for the tax bracket shuffles is the movement away from the consumer price index as a means to annually catalog income levels for tax bracket thresholds. Instead, the bill calls for a switch to chained consumer price index (CPI), which generally results in a lower estimate of annual inflation.
Substituting CPI for chained CPI in the tax code would mean that bracket thresholds would increase more slowly relative to wage increases, meaning more incomes would eventually end up in higher-tiered tax brackets.
The framework of the bill initially had this plan slated to take effect in 2023, but the new version speeds up the process.
While the move would cost middle-class taxpayers more by pushing some into higher brackets at a faster clip, the switch would help reduce the deficit created by the Trump tax plan to $1.41 trillion over the next decade, down from $1.49 trillion.
The new tax proposal consolidates the income tax brackets into four distinct levels, down from seven. The current brackets for married taxpayers are as follows:
- 12%: $24,000 to $90,000
- 25%: $90,000 to $260,000
- 35%: $260,000 to $1.00 million
- 39.6%: $1.00 million and up
The highest rate, 39.6%, is not receiving a tax cut.
“At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill,” House Ways and Means Chairman Kevin Brady said in a statement. It was Brady whose chairman’s mark sped up the switch to chain CPI.
The markup is set to being Monday and to conclude on Thursday. Brady said that it would involve “four days of open full-throated debate.” The Trump tax plan is by no means guaranteed to pass through Congress and will likely undergo several major changes in the coming weeks as it is openly debated.
“Revised Tax Bill Would Put People in Higher Brackets Sooner,” Bloomberg, November 3, 2017.