Increase Individual Income Tax Rates
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
|Billions of Dollars||2021||2022||2023||2024||2025||2026||2027||2028||2029||2030||2021–
|Change in Revenues|
|Raise all tax rates on ordinary income by 1 percentage point||54.7||81.4||85.7||90.3||95.3||89.0||89.8||94.7||99.2||103.8||407.4||884.0|
|Raise all tax rates on ordinary income in the top four brackets by 1 percentage point||13.1||19.8||21.0||22.3||23.8||20.0||19.3||20.4||21.3||22.3||100.0||203.3|
|Raise all tax rates on ordinary income in the top two brackets by 1 percentage point||7.0||10.6||11.2||11.8||12.6||11.6||11.6||12.1||12.5||12.9||53.2||113.8|
As specified by the tax code, different statutory tax rates apply to different portions of people’s taxable ordinary income. (Taxable ordinary income is all income subject to the individual income tax other than most long-term capital gains and dividends, minus allowable adjustments, exemptions, and deductions.) Tax brackets—the income ranges to which different rates apply—vary depending on taxpayers’ filing status and are adjusted, or indexed, each year to include the effects of inflation. Through calendar year 2025, taxable ordinary income earned by most individuals is subject to the following seven statutory rates: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. At the end of 2025, nearly all provisions of the 2017 tax act that affect individual income taxes are scheduled to expire, and the rates will revert to those under pre-2018 tax law. Beginning in 2026, the rates will be 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent.
This option consists of three alternative approaches for increasing statutory rates under the individual income tax. The first alternative would raise all tax rates on ordinary income by 1 percentage point; the second would raise all tax rates on ordinary income in the top four brackets by 1 percentage point; and the third would raise all tax rates on ordinary income in the top two brackets by 1 percentage point. Under all three alternatives, the scheduled changes to the underlying tax brackets and rates would still take effect in 2026.