Inflation Tax Basics

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Today, we’re going to talk about something that’s been causing a real headache for all of us lately: inflation. Prices are going up like crazy, and a lot of that is due to the Federal Reserve’s policies over the last couple of years. They’re the ones who call the shots on the economy, and sometimes those shots can cause some serious damage.

To figure out just how bad inflation is, we use something called the consumer price index (CPI). This is like a barometer for how much the things we buy are going up in price. Normally, inflation doesn’t move too fast, but since the market crash of 2020, it’s been skyrocketing. CPI went from 0.7% in 2020 to 3.4% in 2021, and then exploded to a whopping 6.8% in 2022. These small percentage points can add up real quick at the cash register.

So, why is this happening? Well, the Fed, the people in charge of monetary policy made some changes to try and help the economy during a tough time. They’ve been giving out money left and right and keeping interest rates low to make it easier for people to borrow. But that also means there’s more money floating around, which makes prices go up even more.

When you hear about an “easing” monetary policy, it means the Fed are making decisions that make it easier for prices to rise. And that’s bad news for us because it means things cost more and our money isn’t worth as much. It’s like a tax on our wallets, and nobody likes paying more for the same stuff they used to buy for less.

And if you’re one of the lucky few who got a raise to keep up with inflation, just remember that our tax system is marginal. That means your extra dollars will be taxed at a higher rate than your other income, which isn’t cool but it’s the way the game is played.

So, what can you do about it? First, stay informed on what the Fed is up to. Keep your ear to the ground and try to understand how their decisions can affect your life. Second, be smart with your own money. Save when you can, and don’t borrow more than you need. And finally, if you need a simple solution to get your taxes done right, use ezTaxReturn.com and get your biggest refund.

Inflation is a serious issue, but it’s not one we can’t handle. With a little know-how and some savvy moves, we can ride out this storm and come out on top. Let’s go get it!