Revenues
Increase Individual Income Tax Rates on Ordinary Income
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 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Decrease (-) in the deficit | |||||||||||||
Raise all tax rates on ordinary income by 1 percentage point | -82.3 | -106.3 | -106.4 | -111.7 | -116.5 | -121.5 | -126.8 | -132.4 | -137.9 | -143.5 | -523.2 | -1,185.3 | |
Raise tax rates on ordinary income in the four highest brackets by 2 percentage points | -45.1 | -53.0 | -50.7 | -53.3 | -55.1 | -57.2 | -59.7 | -62.4 | -65.0 | -67.9 | -257.2 | -569.5 | |
Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2025.
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. The tax code specifies the tax rates that apply to ordinary income.
Tax rates vary depending on the tax bracket, or income range, in which a taxpayer's income falls. (Tax brackets vary by taxpayers' filing status and are adjusted, or indexed, each year to include the effects of inflation.) Beginning in 2018, the 2017 tax act (Public Law 115-97) temporarily lowered the tax rates and adjusted the tax brackets that apply to ordinary income. 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, the rates and brackets will revert to those in effect under pre-2018 tax law. Specifically, 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 two alternatives for increasing statutory rates under the individual income tax. Under the first alternative, all tax rates on ordinary income would increase by 1 percentage point. Under the second alternative, tax rates on ordinary income in the top four brackets would increase by 2 percentage points. Under both alternatives, the scheduled changes to the underlying tax brackets and rates would still take effect in 2026.