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Brief

Adjusting the Individual Income Tax for Inflation

Robert McClelland
February 17, 2023
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Abstract

In 2022, the Internal Revenue Service (IRS) announced the largest inflation adjustment in decades. This brief reviews the history of the Consumer Price Index (CPI) and federal income taxes, including the indexing of the tax code in the early 1980s. It also describes the chained CPI, which is currently used for indexing, why it usually grows more slowly than the ‘headline’ CPI, and why that did not happen during the COVID-19 pandemic recovery. It also reviews factors contributing to inflation over the last two years. An appendix lists selected provisions of the tax code and how they are indexed for inflation.

Research Area

Federal Budget and Economy Economic effects of tax policy
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