Sneaky tax code change has been costing taxpayers
The consumer price index has been used to adjust taxation and benefits, like Social Security checks and federal income-tax brackets, for decades. Credit: AP/Jon Elswick
If there’s anything certain beyond death and taxes, it’s our reaction to death and taxes: sadness and anger.
That’s particularly true if the government sneaks in a tax increase in such a way that few realize.
Prepare for sadness and anger! At least some of the (currently skyrocketing) inflation recorded each year will not be reflected in our federal tax brackets.
In 2017, with congressional Republicans and President Donald Trump looking to make their massive tax-cut plan less damaging to federal coffers without impacting corporations or the ultrarich, some dull bulb said, “Hey, what about chained CPI?”
The CPI, or consumer price index, is calculated by looking at price changes in all kinds of goods and services. It has been used to adjust taxation and benefits, like Social Security checks and federal income-tax brackets, for decades.
Chained CPI is different. It theorizes that when prices go up, consumers change — choosing, for instance, to buy chicken instead of beef, or Schlitz instead of Samuel Adams, or smaller assault rifles. The metric first garnered attention about 15 years ago, when policy wonks were wonking to get Social Security spending under control.
No one bellowed “Let them eat day-old cake!” but the idea that Social Security benefit increases didn’t have to reflect ALL of the inflation was out there. Even so, chained CPI was never adopted to set Social Security increases because seniors’ groups lobby virulently, seniors vote compulsively, and congresspeople hate furious calls from Aunt Ida.
And because “If seniors get less money they’ll just eat worse food!” is a terrible slogan.
But in the 2017 tax bill, chained CPI became the vehicle for adjusting income-tax brackets, the standard deduction, and other arcane standards.
The standard deduction for a couple, $24,000 in 2018, will jump from $25,100 in 2021 to $25,800 in 2022. The level at which income goes from being taxed at 12% to 22% will jump 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 hikes bills.
The bracket limits, however, would increase more, and we’d pay less, if they were still figured on traditional CPI. The Congressional Budget Office estimates the change will cost Americans about $134 billion in its first 10 years.
From 2001 through 2017, total CPI was 46%, and total chained CPI was 40%, so the difference does add up. There are three problems with using chained CPI to set these changes:
- It assumes a perpetual lowering of quality-of-life. What comes after 20 years of changing eating standards that began with switching from beef to chicken — switching from dinners of roasted peanuts to light snacks of Styrofoam packing peanuts?
- Chained CPI is a metric unrelated to income. Putting you in a higher tax bracket because you’ll buy a cheaper fishing rod is … gobbledygook.
- It’s a sneaky snatch of $134 billion from taxpayers in a decade, and that number will only grow.
I could be wrong, of course. An in-depth societal debate on the issue might have changed my mind, and chained CPI has plenty of supporters.
But we never got that debate. We just got a quiet change in the tax code predicated on the idea that every year, as prices rise, we’ll choose to live a bit worse.
That might be a truth, but I hate to see it becoming a governmental goal.
Columnist Lane Filler's opinions are his own.
Lane Filler is a member of the Newsday editorial board.
