Hidden inflation taxes are affecting Americans in at least a dozen states
climbing inflation This could mean higher taxes for millions of Americans—a phenomenon known as “bracket creep,” which pushes taxpayers into higher-income groups, even though their purchasing power remains unchanged due to a wild boom in consumer prices. Be.
A new analysis published Tuesday by the Tax Foundation shows that 15 states do not account for inflation when drawing brackets for taxes on wages and income, while another 18 states do not index the personal exemption tax for inflation. In all, 22 states have at least “one major non-indexed provision,” which could mean higher taxes for individuals amid a recent rise in inflation.
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“When tax brackets, standard deductions, or personal exemptions are not inflation-adjusted, they lose value due to inflation, increasing the tax burden in real terms,” it said. AnalysisWritten by Jared Walzak, the Tax Foundation’s Vice President of State Projects. “Bracket creep occurs when more of a person’s income is in a higher tax bracket due to inflation rather than higher real income.”
So-called “hidden taxes” are most likely to affect residents living in states where taxes are not indexed for inflation, meaning there is no automatic cost-saving in the tax provision to keep pace with inflation. There is no adjustment. States where income taxes are not indexed for inflation include Alabama, Connecticut, Delaware, Georgia, Hawaii, Kansas, Louisiana, Maryland, Mississippi, New Jersey, New Mexico, New York, and Oklahoma.
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For example, a hypothetical Delaware resident who earned $60,000 in taxable income in 2019 and now makes $64,000 may not have actually seen an increase in real income; Walzac wrote that the $64,000 she earns today equals about $60,000 in purchasing power.
On top of that, because her state income tax bracket is not indexed for inflation, that high salary pushes her into a higher property tax rate (6.6%), compared to the 5.5% rate she was paying before. Although the resident’s purchasing power is unchanged, his tax bill increases by $264.
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Walzac wrote, “The absence or inadequacy of cost-of-life adjustments in many state tax codes is always an issue, as it constitutes an illegal tax increase each year, cutting into wage growth and a return on investment.” reduces.” “During periods of high inflation, however, the effect is particularly significant.”
The analysis comes days after the Labor Department released a report showing that inflation rose 5.4% in September from where it was a year ago, matching the biggest increase since 2008. Meanwhile, consumer prices rose 0.4% in August to September.
The inflation spike is set to continue well into 2022: Economic projections from the Federal Reserve’s two-day meeting in September show headline inflation expectations for this year are at 3.7% — nearly a full point higher than May’s forecast, That’s when Fed officials anticipated it. 3% will be killed.