Last night on Twitter I received some pushback from followers after I asserted that one reason conservatives should oppose President Obama’s chained CPI cuts to Social Security is that such a policy change would also amount to a tax hike on many middle-class families. It is. Here is how Americans for Tax Reform explains the issue:
On the tax side, all income tax brackets are subject to inflation. Slowing down the inflation rate slows down the annual rate of growth in all income tax brackets.
This means the Obama budget contains a tax increase on 100 percent of middle-class taxpayers — anyone who pays the federal income tax.
And if you don’t want to believe a conservative organization like ATR, here is the liberal Center for Economic and Policy Research:
The Chained CPI would also effectively raise taxes on virtually all working Americans, especially middle and lower income families. By applying it to all government programs, including the annual adjustment in income tax brackets, the Chained CPI would cause those thresholds to rise more slowly than they do now. That would lead to incomes jumping up to higher tax brackets faster, or in other words, income tax increases.
How much does the chained CPI cut Social Security and how much does it raise taxes? According to the most recent Congressional Budget Office estimate, adopting chained CPI would cut Social Security $127.2 billion over the next 10 years and it would raise taxes by $123.7 billion.
Why any conservative would consider a $123.7 billion tax hike a “concession” in the budget debate is beyond me.