Repereusslons of the lax Cuts and Jobs Act on Individual Fil

Repereusslons of the lax Cuts and Jobs Act on Individual Filers Exam Question 1O of 20 Select the best answer. Which of the following statements is correct about the misalignment of the capital gains tax brackets and the tax rate brackets? The 2018 tax rate brackets and 2018 capital gains tax brackets reflect the 2017 brackets adjusted by C-CPI-U. O A. The 2018 tax rate brackets and 2018 capital gains tax brackets reflect the 2017 brackets adjusted by CPI-U ??. O C. The 2018 tax rate brackets reflect the 2017 tax rate brackets adjusted by CPI-U. O D. The capital gain tax brackets are not adjusted annually for inflation. Subimit Answers

Solution

A.

The 2018 tax rate brackets and 2018 capital gains tax brackets reflects the 2017 brackets adjusted by C-CPI-U.

The previous tax code used the CPI-U measure to adjust the brackets, while the new code uses the C-CPI-U measure. The first measure, the consumer price index for urban consumers, assumes you purchase the same quantity of each good in the CPI basket over time. In contrast, the C-CPI-U, or chained consumer price index for urban consumers, recognizes that individuals can shift their expenditure patterns toward cheaper goods in the same expenditure category. For example, suppose chicken prices increase while turkey prices remain unchanged. The CPI-U implicitly assumes individuals continue to buy the same quantity of chicken. In contrast, the C-CPI-U recognizes that consumers will see the price change and substitute turkey for chicken.