Sponsors (21)
The bill protects many middle‑ and lower‑income taxpayers through a capped rate and inflation‑indexed exemption while enabling Congress to raise revenue from high earners, but it broadens the taxable base, can raise marginal rates for those just above the exemption (and for retirees abroad), and creates trade‑offs for revenues and administrative complexity.
Middle- and low-income taxpayers (many middle-class households) would face a cap so they pay no more than 25.5% on MAGI above the exemption, reducing tax liability for a large number of households.
Middle- and lower‑income taxpayers would largely be unaffected by the new surcharge, preserving their current tax rates and shielding most households from higher rates.
Congress gains a targeted mechanism (a surcharge on high earners) to raise additional revenue from high-income taxpayers, allowing funds to be directed toward public services or deficit reduction if used that way.
Taxpayers with incomes just above the exemption (many middle‑class families) could face higher effective marginal tax rates, which may reduce work or saving incentives.
Retirees living abroad and Americans with foreign‑earned income could see their taxable base increase because excluded foreign-earned income and excluded Social Security would be counted in MAGI, raising their tax bills.
The exemption cap and related changes reduce federal revenues (absent offsets), which could force cuts to other programs or increase deficits if not otherwise financed.
Based on analysis of 6 sections of legislative text.
Caps tax for qualifying low- and middle-income taxpayers at 25.5% of MAGI above an inflation-indexed exemption and adds a surcharge on high-income individuals.
Creates a new tax rule that limits how much low- and middle-income people pay by capping their income tax at 25.5% of income above a cost-of-living exemption, and also creates a new surcharge on high-income individuals. The cost-of-living exemption is based on a $46,000 wage indexed for inflation and varies by filing status; the rules use a modified adjusted gross income (MAGI) measure that adds back certain excluded foreign-earned income and excluded Social Security benefits. The changes take effect for tax years beginning after December 31, 2025.
Introduced March 12, 2026 by Christopher Van Hollen · Last progress March 12, 2026