As details continue to emerge relative to the competing tax Bills before Congress, it becomes more apparent that the U.S. Middle Class and the elderly are going to get hosed! LA Times reporter, Michael Hiltzik, has just penned an article related to a proposed change to the CPI calculation that is embedded in both tax proposals. What is being proposed is a move from the standard CPI to the chained CPI for inflation adjustments to tax brackets and other inflation-sensitive provisions of the tax code.
Most individuals wouldn’t necessarily appreciate how this change might impact them – I certainly wasn’t aware of it – but, the magnitude of this change will have a compounding effect over the next two decades and beyond. Independent analysts at the Tax Policy Center have estimated that the difference between the two indexes is roughly 0.3% annually, with the chained CPI regularly coming in lower than the standard CPI. By using the lower annual number, taxpayers will be driven into higher tax brackets prematurely just because of inflation.
For Social Security calculations, the chained CPI, with its smaller annual increase, will keep annual COLAs artificially lower than they should be. In fact, the standard CPI is inferior for this purpose, as the CPI-E, which measures inflation for Seniors, should actually be used. It is estimated that the CPI-E is 0.2% higher annually than the Standard CPI.
Regrettably, the lack of income, which is plaguing a significant percentage of our senior citizens already, especially for women who tend to have fewer retirement assets, will be exacerbated by this switch in the CPI calculation going forward. It is just another attempt to pay for this bill on the backs of those that can least afford it.