The “Cost of Living” Tax Exemption will eliminate the federal income tax obligation of working Americans up to a reasonable, nationally-determined “cost of living” threshold (approx. $50,000) and recoup the lost revenue by applying an “excess income” surtax on incomes over $1,000,000. Estimated required surtax:

• A 3% surtax on incomes from $1,000,001 to $9,999,999; and

• An 8% surtax on incomes of $10,000,000 and above.

Currently, the standard deduction on federal taxes is $15,000 for a single adult with no children. This means that once a worker has made $15,000, they begin to pay federal income taxes. Currently, the “cost of living” for a single adult with no children in the least expensive state in the country, West Virginia, is $40,415, according to the MIT Living Wage Calculator.* For illustration, this provides around $10 per day for food. The cost of living for a single adult with no children in Hawaii, the most expensive state, is $62,233; and in Idaho, the median state, it is $48,216.

Under the current tax code, a single person with no children making $40,000 in West Virginia will pay around $2,500 in federal income taxes. In other words, our current federal tax code moves a person working full time from modest economic stability into poverty. 

Today, more than 40% of working people make less than the cost of living. 40% can’t come up with $400 in an emergency. 

• A “Cost of Living” Tax Exemption will mitigate the devastating effects of inflation on poor and middle class families, and offer a measurable financial benefit to the vast majority of all working people in America (not just those who receive “tips” or Social Security income).** 

• Shifting the responsibility for the lost revenues to taxpayers with incomes over $1 million ensures the proposal will be “deficit-neutral.” 

• Contributions to Social Security and Medicare will remain as is, the change will only apply to federal income taxes, not to federal payroll taxes.

• This proposal will put money directly back into the pockets of people who will (by necessity) spend it, stimulating the economy more broadly over the long run. 

• Most importantly, this simple yet powerful reform will assert the value and importance of work in America and will restore the dignity of independence.

Democratic capitalism has delivered extraordinary wealth to a few people in America. For it to endure, it must ensure it rewards work while delivering dignity and stability for the many. This proposal will do just that.

*Source: Amy K. Glasmeier, “Living Wage Calculator,” Massachusetts Institute of Technology, 2025. Accessed on April 29, 2025 from https://livingwage.mit.edu/.

**Please note: this proposal will leave contributions to Social Security and Medicare intact and will apply only to federal income taxes, not federal payroll taxes.