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1 Nick Kasprak & Mark Robyn, Tax Foundation Projects 2012 Tax Parameters following Release of August CPI Data 1 (2011)

handle is hein.taxfoundation/ffcicxz0001 and id is 1 raw text is: September 15, 2011 No. 282 Tax Foundation Projects 2012 Tax Parameters Following Release of August CPI Data By Nick Kasprak and Mark Robyn Summary The Bureau of Labor Statistics (BLS) recently released its August 2011 estimate for the Consumer Price Index (CPI), including the estimate for urban consumers (CPI-U). This CPI-U statistic is typically the final piece of information needed to calculate federal tax parameters such as the standard deduction, personal exemption, and tax bracket thresholds. The IRS will use these to set withholding rates on wages throughout 2012 and for 2012 tax forms to be filed in early 2013. Last year's projection of this year's tax brackets was complicated by the uncertainty over the potential expiration of the Bush tax cuts, and the need to predict the bracket thresholds for a number of possible scenarios. Fortunately, this year's projection is comparatively simple: last year's tax compromise extended the Bush tax cuts for two years, so there is no doubt they'll be in effect during the next tax year. Therefore, the Tax Foundation can project next year's parameters with a high degree of certainty.1 Inflation Is Average Inflation over the past twelve months (September 1, 2010 through August 31, 2011) averaged 2.43 percent, which is slightly under the historical average since 1992, but significantly higher than the previous 12-month average of 1.48 percent. Table 1 shows the year-over-year inflation rates since 1992 for the statistics that are used to calculate tax parameters. Even though taxpayers will not start filing their 2012 tax returns until January 2013, tax year 2012 parameters are needed in advance of 2012 so that the IRS can produce instructions for 2012 income tax withholding, which will begin in January. Therefore, the inflation adjustments for any tax year must be based on CPI-U data from portions of the previous two years. Nick Kasprak is an analyst and programmer, and Mark Robyn an economist, at the Tax Foundation. Technically, the August 2011 CPI number may be revised on October by BLS, but such revisions are rarely large enough to significantly change tax parameters.

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