Thursday, June 13, 2013

"Chained CPI" Would Mean Back Door Tax Hike

It's been said that the GOP never met a federal income tax that they actually liked. Well, given that so many of them are drooling at the prospects of Social Security benefits cuts via Obama's proposed "Chained CPI", why aren't they also aware that enabling that to go through will induce a tax hike? And by $127 billion over ten years?

This according to an article 'A Backdoor Tax Hike' in the recent issue of the AARP Bulletin (June, p. 30).

While the article notes the chained CPI is a "new way of calculating cost of living adjustments' - it also notes too much attention has been paid to the consumer price index aspect, that naturally would translate into lowered benefits for Social Security. Given the chained-CPI reduces the cost of living adjustment by 0.3 percentage points annuall, that translates into a cut in benefits of 3 percent for those who have been retired ten years, 6 percent after 20 years, and 9 percent after 30 years. The poorest seniors and those retired the longest would therefore be hit the hardest.

But evidently, from the AARP article, while people had their eyes fixated on the benefits cuts they didn't take into account or lost sight of the accompanying tax increases - IF the chained CPI ever goes into effect- which would affect about 80 percent of all taxpayers.  How could such a tax increase have escaped scrutiny? Well, mainly because too many in the media were too mesmerized by the benefits cuts that they missed it.

But think about it! Every year income taxes aren't fixed. Each year the Internal Revenue Service makes adjustments, based on the rate of inflation, to all income tax brackets, standard deductions, personal exemptions and more. This is why one year you may see a higher or lower standard deduction than what you saw the previous year. Ditto with the personal exemptions.  All these adjustments help prevent the default bumping of taxpayers into higher tax brackets - thereby making them pay more taxes because of inflation.

But.....for those conservos who salivate at the chained CPI imposing some austerity on "entitlements" - that's a double edged sword. Because the chained CPI yields smaller increases than the current formula used (under standard CPI) MORE of your income will then come into play to compensate, so more of your income would be taxed at a higher rate.

Alas, however, the tax increase isn't fair with the highest tax increases applied to the lowest incomes and the least to the highest. This may well be why the GOOprs aren't kicking up too much of a storm over it, as they'd get a 'two fer': more austerity for entitlements, plus more taxes for lower income earners. Isn't that what Herman Cain and Rick Perry were thumping about during the 2012 campaign? That too many of the 'takers' didn't pay 'nuff in taxes?

How would that work? According to the AARP Bulletin, those taxpayers currently earning $10,000 - $20,000/year would see their taxes increase by 7 percent over 16 years, citing the Tax Policy Center in Washington. The least increase would be 0.2 percent over 16 years, for those earning more than $1 million per year.

As the Bulletin notes:

"So in addition to cutting Social Security by $142 billion over 10 years, the chained CPI wouild raise income taxes by $127 billion.

 True, but the same low income group is taking the hit each time - for the cuts, and for the taxes. No wonder the richest Americans are wetting their panties at the thought of a chained CPI! It's a win-win proposition for them. They get to see austerity imposed on poor seniors while they get richer on that austerity and not having to give up much in the way of taxes.

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