While inflation has always been a pressing issue in the minds of the American people, the possibility that it might lower tax rates for some in 2023 has made it more relevant to some populations. Inflation is when the purchasing power of money decreases as a result of prices rising across the economy.
Assistant Professor of Economics Ruoning Han gave some insight into how inflation is working in our economy today. The inflation rate is currently at 8.6 percent.
“The Federal Reserve currently targets 2 percent inflation. High inflation devalues money,” Han said. “For example, you are thinking about depositing $1000 in a savings account earning [a] 2 percent annual interest rate. If the inflation is higher than 2 percent, the real value of your money decreases.”
At the other end of the spectrum is deflation, which occurs when prices are declining across the entire economy or just a sector of it.
Ruoning described how important a moderate level of inflation is as a weapon against deflation and the dangers of being in a deflated economy. When inflation drops too low, there is a risk that the economy could swing into deflation. With the U.S.’s current inflation levels, there is very little concern about deflation.
Historically, inflation factors have affected groups of people differently. Associate Professor of Politics Susanne Beechey elaborated on how gender and race wage gaps affect inflation, specifically for women and people of color.
“Since there are both gender and race wage gaps in the United States, we can expect that women and people of color will be more likely to feel the pain of inflation,” Beechey said. “Those reliant on government assistance that isn’t indexed to inflation will find [that] their monthly benefits simply cover less. This can mean choosing between purchasing diapers or food.”
Tax rates, paychecks and cost of living also greatly determine how inflation affects people. The IRS has already made inflation adjustments for 2023. They have the ability to place people into lower tax brackets, thereby reducing tax bills. For qualifying taxpayers who have three or more children, this year’s earned income tax credit for low-income workers will be worth up to $7,420, opposed to its value of $6,935 last year.
Inflation looks and is executed differently based on whether it is occurring at a local, state or national level. While inflation can cause the cost of housing to rise everywhere in the country, areas that are more expensive feel greater impacts.
Professor of Economics and Business Denise Hazlett explained how inflation and the rising cost of living are affecting Walla Walla.
“Because home prices and rents have been going up so fast, they are [some] of the big contributors to inflation,” Hazlett said.
Hazlett also shared a tip that most people can use to help protect their savings from inflation.
“You can go to the U.S. Treasury, and there’s actually a website, Treasury Direct, where you can buy a bond from the U.S. Treasury that offers you protection from inflation.”
As Americans prepare to cast their votes in the midterm elections, inflation has become a central concern for many.
Source: Whitman Wire