WATCA: Fix alternative maximum tax mechanism and add surtax bracket indexing

[DTrim99]

Problem

Our WATCA implementation has discrepancies compared to the Yale Budget Lab analysis:

1. Cost of Living Exemption - Wrong Mechanism

Yale Budget Lab describes:

The bill would establish an alternative maximum tax for low- and middle-income filers. Rather than adjusting the existing tax base, as deductions and exemptions do, this provision places a new ceiling on taxes: a qualifying filer's income tax liability cannot exceed 25.5 percent of modified adjusted gross income (MAGI) above a cost-of-living exemption.

Our current implementation:

• Treats the exemption as a deduction from taxable income
• Missing the 25.5% alternative maximum tax rate entirely

2. Binary Eligibility vs Gradual Phase-out

Yale Budget Lab describes:

Eligibility is limited to filers with MAGI below 175 percent of their exemption... and is binary: filers below the threshold receive the full benefit of the cap, while those above it receive none.

Our current implementation:

• Has a gradual linear phase-out from 100% to 175% of the exemption
• Should be binary: full benefit below 175%, none above

3. Millionaire Surtax Brackets Not Indexed

The surtax brackets ($1M/$1.5M, $2M/$3M, $5M/$7.5M) should be indexed for inflation but currently have no uprating metadata.

Solution

1. Add 25.5% alternative maximum tax rate parameter
2. Rewrite the exemption to work as a tax liability cap, not a deduction
3. Make eligibility binary at 175% threshold
4. Add inflation uprating to surtax bracket thresholds

References

• Yale Budget Lab Analysis
• Washington Post article on WATCA