The state’s tax brackets will be adjusted for inflation in the future under legislation sponsored by State Rep. Paul Curtman, R-Pacific.
Income tax brackets will go up to reflect inflation under the legislation, which passed in the legislative session that ended this month. For instance, if there is inflation of 3 percent next year, the tax brackets will rise by that amount. In the past two years, the average inflation rate has been 2.7 percent, Curtman said.
Each time the tax brackets go up that will be more money that won’t be taxed at the higher rate, Curtman noted.
The tax brackets have never been adjusted for inflation since they were implemented in 1931, he added.
The bill will only adjust tax brackets for inflation going forward. It will not adjust the tax brackets for inflation that occurred in prior years.
Under the tax brackets that were established more than 80 years ago, people who make $9,000 or more per year fall into the highest tax bracket. But in today’s dollars the top tax bracket would be around $138,000 if inflation adjustments would have been made over the years, Curtman said.
Because the tax brackets have not been adjusted for inflation, the state is over collecting about $2 billion per year in taxes because people are in higher income tax brackets than they should be, Curtman said.
Curtman has been working on the bill for two years. Originally, he proposed adjusting the tax brackets retroactively from 1931 to bring them in line with today’s dollars. But this year he was only able to get the tax brackets adjusted for the years going forward.
There was bipartisan support for adjusting the tax brackets, Curtman said, adding that it will help people across different income spectrums.
“Any adjustment in our tax brackets is going to help everyone,” Curtman said. “It’s going to manifest the most value for the poorest people in the state.”
His bill was part of legislation to implement an income tax cut.