26 Ways the GOP’s Tax Reform Will Affect Your Wallet

3. Tax Bracket Bingo (part 1)

The proposal to shrink the number of income tax brackets to four was left on the cutting room floor. The new law keeps seven tax brackets, but with different rates and different break points. For example, not only is the top rate lowered from 39.6% to 37%, but that rate also kicks in at a higher income level. And, note that whatever new bracket you fall in, more of your taxable income will be hit with lower rates. (On the other hand, restrictions or elimination of some tax breaks probably may mean more of your income will be taxed.)

Here are the current tax brackets and the new ones set to apply for years 2018.

3. Tax Bracket Bingo (part 2)

There are also new tax brackets for head of household filers as well as for married couples who opt to file separate returns.

Note that inflation indexing of the tax brackets and various tax breaks is altered in the tax package. Critics complain that this amounts to a surreptitious tax hike that over time would nail nearly all individual filers. Currently, the federal income tax brackets, standard deductions and many other tax items are adjusted annually based on the government-calculated Consumer Price Index. Economists have argued that the version of the CPI used now tends to overstate actual inflation because the formula doesn’t account for how people change their spending patterns as prices rise. They claim that a “chained” index is a far better measure of inflation. A chained CPI would result in lower inflation adjustments than the current index. The new law uses a chained CPI for inflation indexing. As a result, there would be smaller annual increases in tax brackets, standard deductions and other breaks.