Sponsors (13)
The bill lowers taxes for many low- and middle-income households and protects the exemption from inflation while raising revenue from a surcharge on high earners, but it creates potential income cliffs, fiscal trade-offs between lost caps and surcharge revenue, and added administrative and eligibility complications for some retirees and taxpayers near the threshold.
Low- and middle-income taxpayers (those with MAGI below 175% of the exemption) will have their federal income tax liability capped at 25.5% of MAGI above the exemption, reducing taxes for many households.
High-income taxpayers will face an additional surcharge that increases federal revenue, which can be used for public services or deficit reduction.
The cost-of-living exemption is indexed to CPI–U, preserving its real value over time and protecting the exemption from inflation erosion.
People with incomes at or just above the MAGI threshold (≥175% of the exemption) receive no benefit from the cap, creating potential 'cliff' effects where small income increases sharply raise tax burdens.
Capping taxes for many taxpayers will reduce federal income tax receipts, which could increase the deficit or require offsetting revenue increases or spending cuts.
The surcharge’s additional revenue could enable higher overall federal spending or slow the pace of future tax cuts, affecting taxpayers broadly depending on fiscal choices.
Based on analysis of 3 sections of legislative text.
Caps regular income tax for qualifying individuals at 25.5% of MAGI above a cost-of-living exemption and creates a separate surcharge on very high incomes.
Creates a new tax cap for many lower- and middle-income taxpayers so their federal income tax cannot exceed 25.5% of the amount their modified adjusted gross income (MAGI) exceeds a cost-of-living exemption. The exemption is based on an annualized cost-of-living wage equal to $46,000 (indexed by CPI–U) and is scaled by filing status (100% for single, 200% for joint, 140% for head of household). The change applies for tax years beginning after December 31, 2025. Also adds a separate statutory part to impose a surcharge on very high-income individuals (text of that surcharge is not included in the provided excerpt) and clarifies that adding the surcharge part is not treated as a tax-rate change for certain proration rules. The bill defines who qualifies, how MAGI is measured (including certain excluded foreign income and excluded Social Security benefit amounts), and sets indexing and effective-date rules.
Introduced March 16, 2026 by Donald Sternoff Beyer · Last progress March 16, 2026