Inflation continues to be the talk of the Swamp. Despite promises from the smartest men and women in the nation’s capital that a 40-year high consumer price index (CPI) would subside by the year’s end, soaring prices remain Americans’ top priority heading into the November midterm elections. While President Joe Biden and his administration have suggested that relief from the Inflation Reduction Act could arrive early next year, some recent developments could mitigate the pain that has been inflicted upon consumers’ wallets and household budgets across the United States.
Inflation Brings Tax Relief?
The Internal Revenue Service (IRS) has revealed its annual adjustments to tax brackets and standard deductions for the 2023 tax year. Because inflation is so high, the agency has attempted to save Americans money by reducing the amount of tax they will have to pay; to achieve this, it has broadened each tax band. It should be noted that any upward changes to brackets or deductions can be considered a tax cut since confiscatory penalties will apply to a smaller portion of your earnings, and workers will pay less on taxable income. Unfortunately, if the annual inflation rate is 8% and Americans are keeping 3% more from their incomes, their earnings are still being imbibed by inflation. But at least the agony is cushioned slightly.
That said, Americans need to brace themselves because here is a look at the newest brackets for personal income taxes next year that might result in a bill increase ranging from $725 to close to $46,000:
- 10%: All income below $11,000 for individuals and $22,000 for married couples.
- 12%: $11,000 Individual | $22,000 Married
- 22%: $44,725 Individual | $89,450 Married
- 24%: $95,375 Individual | $190,750 Married
- 32%: $182,100 Individual | $364,200 Married
- 35%: $231,250 Individual | $462,500 Married
- 37%: All income above $578,125 Individual | $693,750 Married
The tax-collecting agency also altered its brackets for capital gains taxes. Once again, the increases could range from nearly $3,000 to more than $36,000.
- 0%: All earnings below $44,625 Individuals and $89,250 Married
- 15%: $44,625 Individual | $89,250 Married
- 20%: $492,300 Individual | $553,850 Married
Social Security Benefits Boost
The Social Security Administration (SSA) recently confirmed that recipients will receive an 8.7% cost of living adjustment (COLA) in 2023, the biggest in about 40 years. As a result, the average beneficiary will get an extra $140 per month. This comes after last year’s notable 5.9% COLA. Indeed, it is terrific news for cash-strapped seniors who have seen their investment portfolios and a plethora of other assets come down significantly over the last 12 months. But, at the same time, the large-sized COLA could add to inflation pressures and squeeze the US government dry.
First, as Liberty Nation noted in 2021, the SSA spending tens of billions of dollars more per year will accelerate its insolvency, as the administration already noted that it can only cover 100% of the benefits until 2035. Second, a declining labor force participation rate means fewer workers contribute to the system, which is essential for the retirement scheme’s survival. Third, the COLA will only enable consumers to keep paying higher prices, exacerbating the current cost-of-living crisis.
Stimulus Checks in the Mail
(Photo by Erik McGregor/LightRocket via Getty Images)
Lastly, more than a dozen states will be handing out inflation-relief stimulus checks this year. Earlier this month, California began sending $1,050 payments to residents to help fight inflation. Others, such as Colorado, Florida, and New Mexico, have already issued checks to residents. The problem is that these funds will add to inflation challenges because the money will fuel demand at a time when supplies are insufficient. Politicians might have good intentions – there is a midterm election coming up! – but these types of efforts, by both Republicans and Democrats, are poor economics.
The Inflation Tax
Legendary author Henry Hazlitt famously and succinctly wrote that “inflation is taxation.” Writing in Economics in One Lesson, Hazlitt stated: “All government expenditures must eventually be paid out of the proceeds of taxation and inflation itself is merely a form, and a particularly vicious form, of taxation.” The federal government certainly does not have a revenue problem, collecting more than $4.4 trillion in fiscal year 2022. Instead, Washington suffers from a spending issue, which is evident in the annual budget deficits. These gaps are funded through debt monetization, prompting the Treasury Department to sell bonds and the Federal Reserve to swoop in to buy these instruments. Unfortunately, new dollars are created, and the freshly printed money travels through the system. By the time consumers touch the cash, its purchasing power will have been eroded.
Suffice it to say, all these minor alterations from the IRS to the Social Security Administration amounts to a hill of beans. Sure, these public policy campaigns generate a modicum of alleviation from this treacherous misery. But the agony will stay entrenched in the economy, and everyone will still endure an elevated and sticky CPI. Will the annual inflation rate fall in 2023? Most likely. But will prices crater as fast as they soared to the heavens? Highly unlikely.
