#### Comment Preferences

• ##### OK. I read this post and the linked piece(1+ / 0-)
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judy99

and I still don't understand why there's a tax increase because of chained CPI.

Can someone explain?

thanks.

The GOP: "You can always go to the Emergency Room."

• ##### I have the same question(1+ / 0-)
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Upper West
• ##### The brackets are adjusted for inflation(1+ / 0-)
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Upper West

As the value of the dollar declines, the amount at which the next highest bracket cuts in goes up, so you pay a little less tax because more of it is in the lower bracket, and you're taxed accordingly less.  Supposedly.  Since the CPI is used, and it does a crappy job of reflecting actual inflation (my opinion), then the real effect is that, if your income goes up exactly as much as (real) inflation, some of that will be taxed at a higher rate.

Wiki has an an item that might help explain it.

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[ Parent ]

• ##### I need examples.(0+ / 0-)

Let's say right now someone's on social security, receiving \$25,000 per year.  Would that person get a tax increase if there were chained CPI?  How?

The GOP: "You can always go to the Emergency Room."

[ Parent ]

• ##### The tax increase is not a function of Social (1+ / 0-)
Recommended by:
squarewheel

Security.  It is related because tax brackets are CPI adjusted in the same way that Social Security benefits are.

If chained CPI were used to calculate tax brackets, those bracket levels would move up more slowly, just as Social Security benefits would increase more slowly.

That's OK if the new calculation matches actual inflation, but, if it lags behind you have a problem like this:

(all made up numbers because I don't want to look up tax brackets)

Income: 30,000
taxes based on 15% taxes on first 20,000 and 25% on rest: \$5500

Real inflation = 10%, salary rises to match (we can dream!), but CPI says inflation is only 5%:

Income: 33,000
taxes base on 15% on first 21,000 and 25% on rest: \$6,150

Your income has gone up 10%, just like your cost of living, but your taxes have gone up 11.8%.  It could have been more, too, if the changes had caused part of your income to fall in the next higher bracket.

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[ Parent ]

• ##### And the tax increase may be reasonable ...(1+ / 0-)
Recommended by:
dinotrac
That's OK if the new calculation matches actual inflation, but, if it lags behind you have a problem like this
To be fair, the whole argument for the chained CPI is that it more accurately matches actual (i.e., experienced) inflation than does the regular unchained CPI.  So the premise of your example might be rewritten as:
Unchained CPI-calculated inflation = 10%, salary rises to match (we can dream!), but chained CPI says true inflation is only 5%
In this case, the 10% salary hike you received really did make you wealthier, and the tax rate hike is arguable justified.
• ##### so the proposal is to use the chained CPI(0+ / 0-)

for both the social security cost of living increase and the increase in the tax brackets?

The GOP: "You can always go to the Emergency Room."

[ Parent ]

• ##### That wasn't clear to me, but that would have(0+ / 0-)

to be the case for the article's premise to be true.

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[ Parent ]

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