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INFLATION HAS BEEN the big economic story of 2022. Steep increases in consumer prices have hurt families in many ways—some of which aren’t so obvious.
You’re likely aware of the hefty increases in borrowing costs, home prices, rents, gas prices and groceries. But here’s something else to consider: how inflation can lead to higher taxes.
Important parts of the federal tax code aren’t indexed for inflation. Result: If inflation leads to nominal increases in a family’s income, it could lead to larger tax bills at a time when many taxpayers are already contending with steeply higher consumer prices. That would be an ill-timed double whammy for many Americans. Consider eight examples:
What can be done? John Goodman and Boston University professor Laurence Kotlikoff recently proposed several measures to reduce the tax bite caused by inflation. For instance, they recommended fully indexing the federal tax code for inflation and doing the same for the threshold at which Social Security benefits are taxed. They also proposed eliminating the payroll tax for anyone over Social Security’s full retirement age.
Their proposals won’t lower the inflation rate, but they would lessen the pain of inflation for many taxpayers and Social Security recipients. That strikes me as a worthy goal.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance.
This article first appeared on HumbleDollar. If you’d like to receive the site’s free weekly newsletter, sign up here.
This post was last modified on July 18, 2022 11:50 am
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