Yesterday, the Biden administration announced that the Internal Revenue Service would be adjusting tax brackets for the 2023 tax year to take account of inflation, with the highest amount of income to which each rate applies being bumped up by 7%.
The news was heralded with headlines such as “Surprise tax relief.” It should not have been. While it is good that next year, a taxpayer would have to earn $11,000 rather than $10,275 to be subject to a marginal tax rate of 10%, there are two reasons why this adjustment does not constitute real tax relief. First, for nearly a year, high rates of inflation have been hitting taxpayers here and now — so relief in 2023 isn’t likely to be much consolation. Second, while the IRS has adjusted the highest amount of income in each tax bracket upward by 7%, inflation in several months of 2022 has exceeded 7%. That makes this a de facto tax hike.
REPUBLICANS MUST NOT BLOW THEIR MIDTERM ELECTIONS RESPONSIBILITY
According to Bureau of Labor Statistics data, in January 2022, the U.S. inflation rate was 7%. But by March, it was 8.5%. By July 2022, it was 9%. Now, it has fallen back down to 8.2%. To achieve actual, discernible, inarguable “tax relief,” tax brackets should have been adjusted by the highest rate seen in the last 12 months — so that 9%. But again, to the extent that the adjustment is helpful (and to be clear, it’s better than no adjustment), it isn’t in the here and now as consumers are facing higher prices and struggling more to stretch their paychecks. This won’t help until paychecks start coming through in January.
If the adjustment is no real, immediate help to consumers, it’s also no real, immediate help to Democrats, who are getting hammered over inflation and concerns about an economic pullback. Despite increased energy among likely Democratic voters due to the Dobbs decision, Kevin McCarthy is overwhelmingly likely to become the next speaker around about when the new tax brackets take effect, thanks to voter worries about the economy. Mitch McConnell may also switch places with Senate Majority Leader Chuck Schumer as a result, despite some genuinely abysmal GOP candidates running for Senate who would probably stand no chance of winning if inflation actually were running at the IRS’s preferred 7% number.
This is not all Democrats’ fault; the sad reality is that President Donald Trump and Congress during his tenure were far too willing to go along with big spending, which helped set up this out-of-control inflation situation. But Democrats and President Joe Biden deserve more of the blame because they had taken that approach and continued to run with it, even when it was apparent that we had an inflation problem that was unlikely to be transitory.
Prescription drug price negotiation provisions of the Inflation Reduction Act might not be without effect where inflation is concerned; the problem is that a boatload of other policy, whether it is student debt forgiveness or the other spending contained in that bill, will negate any benefits.
Meanwhile, Democratic leaders in Congress have been eager to pursue legislation that would take a sledgehammer to free or cheap products offered by tech companies that consumers may come to rely on even more as they look to cut costs amid high inflation, and slow to act on bills like the NOPEC Act, which appears capable of clearing the Senate with over 60 votes and would target high gas prices. For the record, those have been creeping up again: As of today, per GasBuddy, the average gallon of gas in America costs $3.83, and in the swing states of Nevada and Arizona, a gallon averages respectively $5.11 and $4.38. No wonder Nevada Democrats, writ large, are in trouble, and so appears to be Arizona’s Democratic gubernatorial nominee.
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Make no mistake, though, meaningful tax “relief” for Americans does not flow from this IRS bracket-shifting. And to the extent anyone feels grateful about being whacked less hard than they had expected by the tax man, that gratitude will not be felt until Democrats have likely already sustained an inflation-driven shellacking at the polls and their chief rivals are back in charge.
Liz Mair is the founder, owner and president of Mair Strategies, a boutique strategic communications firm with offices in six U.S. metropolitan areas. The firm has worked on a variety of tax and antitrust policy matters since its inception in 2011.
