The tax code is a thicket of rules and write-offs that often adjust for inflation --- but sometimes not.
On Thursday morning, Consumer Price Index data from the Labor Department showed a 0.6% increase month over month on the January prices people paid for everyday goods. That’s a 7.5% increase year over year, topping Wall Street expectations. This pace of inflation hasn’t been seen in four decades.
The income-tax filing season started Jan. 24 and runs through April 18. Yet the tax brackets and standard deduction amounts that people are applying now were announced in October 2020 — and they were informed by inflation data that stretched back even farther. Another example: Once applying their capital gains, a person can write off another $3,000 for their capital loses. It’s stayed at that number since 1978, said Alex Muresianu, federal policy analyst at the Tax Foundation.
At the top end, the 3.8% net investment income tax is geared at the investment gains of high-end households. It applies for individuals making at least $200,000 and married couples filing jointly with a $250,000 income threshold. These thresholds have gone untouched since they took effect 10 years ago.
That dates back to the times when Ronald Reagan was president, and he plays a role in the way income taxes try to avoid “bracket creep” from price inflation.
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