Summary: On July 21st 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would index the value of certain tax benefits to inflation:
- Child Tax Credit and Non-Child Dependent Credit (value and phaseout threshold)
- Child and Dependent Care Credit (maximum value and phaseout threshold)
- Lifetime Learning Credit and American Opportunity Credit (maximum value and phaseout threshold)
- Student loan interest deduction (maximum deduction)
The bill would also extend the sunset date for the $10,000 cap on SALT deductions (currently end-of-year 2025) by one year.
Table 1 contains conventional revenue estimates. We estimate the proposal would cost $60 billion on net over the budget window (2023-2032). The inflation-indexing provisions considered alone would cost $185 billion. Tables 2 and 3 display projected distributional effects in tax years 2023 and 2026, respectively.
| Provision | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | Budget window |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Index the Child and Non-Child Dependent credits | -4.3 | -9.3 | -14.5 | -11.0 | -14.2 | -15.9 | -16.5 | -17.1 | -21.7 | -23.5 | -147.9 |
| Index the Child and Dependent Care credit | -0.5 | -0.3 | -0.4 | -0.5 | -0.6 | -0.6 | -0.7 | -0.8 | -0.9 | -1.0 | -6.3 |
| Index education-related credits | -0.9 | -1.2 | -1.7 | -2.0 | -2.4 | -2.8 | -3.3 | -3.7 | -4.4 | -4.9 | -27.2 |
| Index the maximum deduction for student loan interest | -0.2 | -0.2 | -0.2 | -0.3 | -0.3 | -0.4 | -0.5 | -0.5 | -0.6 | -0.6 | -3.8 |
| Extend the limitation on the deduction for SALT | 0.0 | 0.0 | 0.0 | 96.7 | 28.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 125.6 |
| Total | -6.0 | -11.1 | -16.8 | 82.9 | 11.5 | -19.7 | -20.9 | -22.0 | -27.5 | -30.0 | -59.5 |
| Income group | Average tax change | Share with tax cut | Average tax cut | Share with tax increase | Average tax increase | Share of tax change |
|---|---|---|---|---|---|---|
| Bottom quintile | $0 | 0.2% | -$105 | 0.0% | - | 0.0% |
| Second quintile | -$25 | 12.2% | -$210 | 0.0% | - | 7.6% |
| Middle quintile | -$65 | 25.0% | -$250 | 0.0% | - | 19.9% |
| Fourth quintile | -$85 | 28.2% | -$305 | 0.0% | - | 26.0% |
| 80-90% | -$170 | 37.5% | -$455 | 0.0% | - | 26.0% |
| 90-95% | -$115 | 32.8% | -$345 | 0.0% | - | 8.8% |
| 95-99% | -$190 | 26.1% | -$735 | 0.0% | - | 11.6% |
| 99-99.9% | -$5 | 1.8% | -$145 | 0.0% | - | 0.1% |
| Top 0.1% | $0 | 0.9% | -$140 | 0.0% | - | 0.0% |
| Income group | Average tax change | Share with tax cut | Average tax cut | Share with tax increase | Average tax increase | Share of tax change |
|---|---|---|---|---|---|---|
| Bottom quintile | -$15 | 6.5% | -$250 | 0.0% | $160 | -0.3% |
| Second quintile | -$90 | 32.0% | -$285 | 0.4% | $445 | -2.1% |
| Middle quintile | -$60 | 26.0% | -$310 | 2.8% | $700 | -1.4% |
| Fourth quintile | -$40 | 24.5% | -$770 | 15.3% | $955 | -0.9% |
| 80-90% | $715 | 11.5% | -$1,340 | 50.3% | $1,730 | 8.3% |
| 90-95% | $2,045 | 0.3% | -$205 | 71.7% | $2,855 | 11.9% |
| 95-99% | $3,325 | 0.1% | -$205 | 73.1% | $4,550 | 15.5% |
| 99-99.9% | $34,235 | 0.1% | -$215 | 84.6% | $40,470 | 35.9% |
| Top 0.1% | $284,210 | 0.1% | -$210 | 87.2% | $325,930 | 33.1% |