Just because it is "excluded" does not mean it is not taken into account for tax calculations.
When determining the tax bracket of the non-excluded income (such as your income), the tax bracket is based on the total income. So effectively the excluded income 'uses up' the lower tax brackets and the non-excluded income stays in the higher tax brackets.
Also, the excluded income is still factored into many types of deductions and credits, so even though it is not directly taxed it may reduced (or eliminate) some deductions and credits.
