Regional cost-of-living adjustments in individual income tax rates

(a)

General rule

Subsection (f) of section 1 of the Internal Revenue Code of 1986 (relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraphs:

(9)

Regional cost-of-living adjustments

(A)

In general

In the case of an individual, the rate table otherwise in effect under this section for any taxable year (determined after the application of paragraph (1)) shall be further adjusted as provided in subparagraph (B). (B)

Method of making regional adjustment

The rate table otherwise in effect under this section with respect to any individual for any taxable year shall be adjusted as follows: (i)The minimum and maximum dollar amounts otherwise in effect for each rate bracket shall be multiplied by the applicable multiplier (for the calendar year in which the taxable year begins) which applies to the statistical area in which the individual’s primary place of abode during the taxable year is located. (ii)The rate applicable to any rate bracket (as adjusted by clause (i)) shall not be changed. (iii)The amount setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments in the rate brackets.

If any amount determined under clause (i) is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50.

(10)

Determination of multipliers

(A)

In general

Not later than December 15 of each calendar year, the Secretary shall prescribe an applicable multiplier for each statistical area of the United States, which shall apply to taxable years beginning during the succeeding calendar year. (B)

Determination of multipliers

(i)For each statistical area where the cost-of-living differential for any calendar year is greater than 100 percent, the applicable multiplier for such calendar year shall be 100 percent of such differential. (ii)For each statistical area where the cost-of-living differential for any calendar year does not exceed 100 percent, the applicable multiplier for such calendar year shall be 1. (C)

Cost-of-living differential

The cost-of-living differential for any statistical area for any calendar year is the percentage determined by dividing— (i)the cost-of-living for such area for the preceding calendar year, by (ii)the average cost-of-living for the United States for the preceding calendar year. (D)

Cost-of-living for area

(i)

In general

For calendar year 2005 and each calendar year thereafter, the Secretary of Labor shall determine and publish a cost-of-living index for each statistical area. (ii)

Methodology

The cost-of-living index determined under clause (i) for any statistical area for any calendar year shall be based on average market prices for the area for the 12-month period ending on August 31 of such calendar year. The market prices taken into account under the preceding sentence shall be selected and used under the same methodology as is used by the Secretary of Labor in developing the Consumer Price Index for All Urban Consumers. (E)

Statistical area

For purposes of this subsection, the term statistical area means— (i)any metropolitan statistical area as defined by the Secretary of Commerce, and (ii)the portion of any State not within a metropolitan statistical area as so defined. (F)

Areas outside the United States

The applicable multiplier for any area outside the United States shall be 1.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2005.