Today's something new---I never thought about this before, but your tax return isn't adjusted for inflation. In fact, not any part of our tax system is, it's all in what economists refer to as nominal figures. Nominal may sound important, but all it means is, yup, "not adjusted for inflation."
If you are just a wage-earner, what does it mean? Well, I'm afraid it doesn't affect you too much. In fact, it means, at worst, in today's U.S. economy, you pay the government in dollars worth less than when you made them, i.e. it's to your advantage.
A different story would be, if you have capital gains then it could be detrimental for you. For instance, if a "safe" stock that you bought, appreciated less than 2% this year, then it actually lost value since you bought it, because the inflation rate is currently +2% for the year--really not bad at all for inflation. However, to get the "real" capital gain, you would have to divide the value of the stock by the inflation rate. Real is a less important sounding word economists use to mean they adjusted for the change in the value of money, i.e. inflation. So, after you took a loss on that stock, you would have to pay taxes on that 2% capital gain that the IRS thinks you have, that would INCREASE your loss. With small numbers like we see in today's inflation rate, that may not seem like much, but I feel sorry for the people who owned stock during the 1970's and 1980's--they took a bath, so to speak.
Why don't we adjust our tax system for inflation? Are you kidding? Congress can't add anyway--after all, most of those guys are lawyers, and they are scared of math, anyway---don't try to confuse them with complicated-sounding words like "nominal." Sheesh!
Sorry for the nerdy-economist blog, but--you know--I'm going to school for this crap.
