Taxes, Fiscal Policy, and Inflation
Consumer prices rose by 7 percent in 2021, the highest annual rate of inflation since 1982. Where did this inflation come from and what might its impacts be? Tax and fiscal policy offer important clues.
5 min readNot only does inflation resemble a tax, it impacts taxes, too. Inflation can push taxpayers into higher income tax brackets or reduce the value of tax credits, deductions, and exemptions. This is known as bracket creep, which results in an increase in income taxes without an increase in real income.
Consumer prices rose by 7 percent in 2021, the highest annual rate of inflation since 1982. Where did this inflation come from and what might its impacts be? Tax and fiscal policy offer important clues.
5 min readWhile hoping for inflation’s continued decline, policymakers should finish the job and index the tax code to prepare for future bouts of high inflation and as a contingency in case it takes longer to defeat elevated inflation than expected.
4 min readInflation is often called a hidden tax, but in many states it yields a far more literal tax increase as tax brackets fail to adjust for changes in consumer purchasing power.
5 min readThe Biden administration does have a point about how some components of the infrastructure bill could put downward pressure on inflation in the long term. However, the taxes chosen to pay for those investments would counteract those effects, by reducing investment and productivity growth.
4 min readWhile parts of the U.S. tax code can handle inflation, full expensing of capital investment would be a major improvement along these lines.
5 min readWhat can the U.S. do to raise the revenue needed for infrastructure upkeep and accurately internalize the costs associated with road usage?