12 reasons U.S. taxes are rising—and inflation isn’t to blame

Federal receipts are projected to hit nearly $6.5 trillion in 2025, up roughly 12% from 2022, even though headline inflation has slowed. Much of this increase is about policy catching up with time.

Expiring provisions from the 2017 Tax Cuts and Jobs Act, new state-level taxes on investment income, and federally imposed minimums on corporate profits are layering structural revenue increases on top of everyday wages. Meanwhile, IRS enforcement is getting a nearly $80 billion boost to close the $600 billion “tax gap,” ensuring that more Americans actually pay what the law intends.

From shrinking deductions and capped SALT credits to unindexed thresholds that trap more earners in surtaxes, the mechanics of rising U.S. taxes are baked into legislation rather than inflation. Here are 12 reasons your tax burden is climbing, proving this isn’t merely a story of higher prices.

TCJA

The biggest driver is the expiration of nearly all individual income tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025.

Tax rates across most brackets revert to higher, pre-2017 levels. Crucially, the standard deduction for a married couple is scheduled to drop from approximately $30,725 to about $16,525 in 2026 (adjusted for inflation).

SALT Deduction

The TCJA introduced a $10,000 cap on the deduction for State and Local Taxes(SALT) paid. While this deduction cap was a tax increase for high-tax states, its scheduled expiration in 2026 will allow all eligible SALT to be deducted again.

“The expiration of the SALT cap in 2026 will reduce federal taxable income for many high earners in high-tax states, though the size of the benefit varies because some taxpayers were already limited by the AMT before 2018. During the years the cap was in place, those who previously relied on large state tax deductions generally faced higher taxable income and a higher effective federal tax rate, but this was not universal.

For taxpayers who shifted to the standard deduction under the TCJA, the rollback of the doubled standard deduction in 2026 will increase taxable income unless the returning personal exemptions fully offset the change. Overall tax outcomes will depend on how these provisions interact with the 2026 bracket structure and any new legislation.”

State-Level Capital Gains Net

States are realizing that income isn’t the only source of revenue. They are aggressively targeting investment profits.

States like Washington and California are leading the charge by implementing or considering new taxes on capital gains or wealth. Washington imposes a 7% excise tax on an individual’s net long-term capital gains above the annual standard deduction, which is $270,000 for tax year 2024 and $278,000 for 2025.

Beginning in 2025, gains exceeding $1 million above that deduction are subject to an additional 2.9% surcharge, resulting in a 9.9% rate on that portion. This is a structural increase in the tax on investment returns, independent of the federal inflation-adjustment schedule.

IRS Enforcement Gets a New Budget

It’s not just the rates going up; it’s the probability of actually having to pay what you owe. The Inflation Reduction Act (IRA) allocated roughly $80 billion in funding to the IRS over a decade for modernization and increased enforcement.

The goal is to aggressively close the “tax gap”, estimated at over $600 billion annually. For taxpayers who previously cut corners on complex filings, this renewed audit power will feel like a hefty and sudden tax hike.

Death of Immediate R&D Expensing

As of 2022, companies are no longer allowed to immediately deduct Research & Development (R&D) costs in the year they are incurred. Instead, they must amortize (spread out) these deductions over five years (or 15 years for foreign R&D).

This forces businesses to report higher taxable income in the short term, effectively increasing their effective tax rate.

Shrinking Depreciation Write-offs

Bonus depreciation, which allowed businesses to deduct 100% of the cost of new equipment immediately, began phasing down by 20% each year starting in 2023. As companies can deduct less of their capital investments upfront, their taxable income rises, leading to a bigger bill.

Higher Corporate Minimum Tax

While the statutory corporate rate (21%) is permanent, the IRA created a new tax floor for large companies.

A 15% Corporate Alternative Minimum Tax (CAMT) now applies to corporations with over $1 billion in average annual financial statement income. This targets companies that use numerous credits and deductions to bring their taxable income close to zero, ensuring they pay at least a minimum share. This is a deliberate, structural revenue raiser.

Medicare Surtax

A key provision of the Affordable Care Act (ACA) is a tax hike on high earners, and the threshold isn’t indexed for inflation.

The Additional Medicare Tax imposes an extra 0.9% on wages and self-employment income above $200,000 for single filers ($250,000 for married couples). Since this $200,000 threshold never adjusts for inflation or wage growth, more and more middle- and high-income earners cross it each year, triggering the extra 0.9% tax. This is a powerful, self-expanding tax hike.

Return of the Pease Limitation

If the TCJA expires, an obscure provision called the Pease limitation is set to return.

The Pease limitation limits the amount of itemized deductions that high-income taxpayers can claim. For example, if your income exceeds a certain threshold (e.g., $300,000), your itemized deductions could be reduced by up to 80%. This is a direct tax increase aimed at wealthy individuals, entirely separate from inflation.

The Chained CPI Creep

The one direct link to inflation actually works against the taxpayer. In 2017, Congress permanently switched the inflation adjustment metric for tax brackets and other provisions to the Chained Consumer Price Index (C-CPI).

The C-CPI assumes consumers adjust their spending when prices rise (e.g., buying chicken instead of steak), so it typically increases more slowly than the standard CPI. This slower adjustment pushes taxpayers into higher brackets and phases out credits faster than their actual cost of living increases, raising taxes through stealth.

Net Investment Income Tax (NIIT)

High-income investors face an extra 3.8% Net Investment Income Tax (NIIT) on investment income. The income thresholds that trigger this tax (e.g., $250,000 for married couples) are not indexed for inflation.

As wages and nominal incomes rise over time—even with modest inflation—more and more middle-to-high-income earners cross this fixed threshold, subjecting their dividends and capital gains to the extra 3.8% levy. It’s an ever-widening net that catches more people each year.

Excise Tax on Stock Buybacks

The IRA introduced a 1% excise tax on the net value of stock buybacks by publicly traded companies.

While this is a tax on the corporation, analysts argue that this cost will ultimately be borne by shareholders (through reduced capital appreciation) and, potentially, employees or consumers. By reducing the efficiency of capital return, it’s a tax on corporate wealth that trickles down to investors.

Key Takeaway

Your tax burden is escalating because of:

• Policy Cliffs: Congress built time bombs (TCJA Sunset) that are now detonating, reverting rates to higher levels.
• Targeted Revenue: Federal and state governments are actively seeking revenue from new, previously sheltered areas (Wealth, R&D, Large Corporations, and NIIT).
• Armed Enforcement: The beefed-up IRS is making non-compliance a far costlier proposition.
• Indexing Rig: The switch to Chained CPI ensures that even minor inflation accelerates the rate at which you pay more.

Disclosure line: This article was developed with the assistance of AI and was subsequently reviewed, revised, and approved by our editorial team.

Why investing for retirement is so important for women (and how to do it)

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