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A Partial Return to Bracket Creep Is a Tax Hike


Posted by Ryan Ellis on Wednesday, June 22nd, 2011, 9:27 AM PERMALINK


There are three sources today (WSJ, Time, and an op-ed in IBD) which suggest that slowing down the pace at which the tax code is indexed to inflation is not a tax hike.  It's also suggested that this is being discussed as part of the debt limit negotiatons.

This idea would most certainly be a tax hike.

Tax brackets and other tax benefits are tied to the consumer price index (CPI).  There are several ways to measure CPI, including a measurement which is less fast-paced than the CPI measurement used today.  The idea is to use this alternative definition of CPI to slow down the inflation adjustments in the tax code.

This would mean that tax bracket thresholds would grow more slowly.  This would be a legislated tax change scored by the Joint Tax Committee as a net tax hike, and for good reason: it would change tax law, forcing people to pay more in taxes than they otherwise would have.

It's also a partial return to "bracket creep," the 1970s phenomenon whereby people were pushed into higher tax brackets even though their real standard of living didn't rise at all. 

This idea can of course be part of a discussion of comprehensive and revenue-neutral tax reform, but stand-alone it is a tax hike.

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