Why our taxes keep going up–some of things you may not know.

The “high priest of Republican tax cutting” talks to ThinkAdvisor about bracket creep, tax-efficient investments and the surprises taxpayers are facing this year.

Sooner or later nearly everyone will be affected – infected, shall we say? – by “bracket creep.” Ryan L. Ellis, dubbed “the high priest of Republican tax-cutting,” by The New York Times, bemoans bracket creep.

In an interview with ThinkAdvisor, Ellis, a leading tax expert on the political scene and an IRS enrolled agent shed light on bracket creep and other matters germane to 2015 tax returns and beyond.

ThinkAdvisor spoke with him about tax-efficient investments, this season’s taxpayer surprises, what’s upcoming for 2016 and why bracket creep is a damnable fact of life. Here are interview highlights:

THINKADVISOR: Is the U.S. tax system becoming increasingly progressive?

RYAN L. ELLIS: Yes. It has built into it things that make it more and more progressive every year. That increases the tax burden every year. So it’s already baked into the cake: If we keep current law in place, we’re going to have higher taxes and more progressive taxes. The Congressional Budget Office says that by the end of this century, the federal tax burden will go from the current 18% of GDP to 24% of GDP, which will be a record.

Why?

Two reasons: The first is bracket creep, which happens because the tax brackets are indexed to inflation. The CBO is projecting that more and more income will be taxed at higher bracket levels because people’s incomes grow faster than inflation, and that’s especially true at the top end.

What’s the second reason?

The 3.8% surtax on savings and investments – a result of Obamacare – is not indexed to inflation: It kicks in with households that have adjusted gross income of $250,000 or more. Over time, more people will be making $250,000. In a hundred years, that will be what you earn if you work at McDonald’s during the week! So almost everybody is going to be paying that 3.8%.

Any surprises for taxpayers this year?

A few. One is how high capital gains rates have become. People still have 15% in their heads because that was the rate for about 10 years. But if you’re a high net worth individual, you can easily have the regular capital gains rate of 20% and on top of that the 3.8% surtax. With itemized deductions being clawed back, this has the mathematical effect of increasing the capital gains rate. And then, state income taxes have been on the rise for the last 10 to 15 years.

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