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This was largely due to how cost-of-living adjustments are calculated and implemented in the tax code. Changes are calculated on chained CPI Oct-Sep, and the ad

This was largely due to how cost-of-living adjustments are calculated and implemented in the tax code. Changes are calculated on chained CPI Oct-Sep, and the adjusted brackets and standard deductions go into effect the following January. Because of the timing, the 2022 adjustments were very small, but the 2023 adjustments were very large. On average, everyone got a 1.5 percentage point tax hike to their effective tax rate in 2022, and then the same as a cut in 2023. This is the average effective tax rate: https://fred.stlouisfed.org/graph/fredgraph.png?g=19545 https://fred.stlouisfed.org/graph/fredgraph.png?g=19545

doctorpangloss 3y ago
How does that explain an 8.8% drop? I get that it's a factor, but I wouldn't call it "largely." I mean it's right there in the article, "the expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty." I'm not sure how the top ranked comments, both of them, get things so wrong. However you are definitely onto something sophisticated so... can you comment on the substance of the article instead of this kind of arcane thing that couldn't be the biggest factor?
- TradingPlaces 3y ago
  Sorry, should have been more precise: “Besides high inflation…” Sorry, I sometimes skip stating priors. Bad habit Start with nominal income, YoY. Personal income is before-tax, disposable personal income is after-tax https://fred.stlouisfed.org/graph/fredgraph.png?g=195kL https://fred.stlouisfed.org/graph/fredgraph.png?g=195kL Nominal incomes were up 2.3% in 2022, but after tax incomes were down 0.3%. Wage inflation had pushed people into higher tax brackets, and the standard deduction covered a smaller portion. That did not get corrected until Jan 2023, when brackets and deductions all went up over 7%. So the big takeaway is that nominal wage gains in 2022 were all eaten up by higher taxes, and that’s before we layer in inflation. Now, lets layer in inflation: https://fred.stlouisfed.org/graph/fredgraph.png?g=195ll https://fred.stlouisfed.org/graph/fredgraph.png?g=195ll But now let’s add in H1 2023. First, nominal https://fred.stlouisfed.org/graph/fredgraph.png?g=195mP https://fred.stlouisfed.org/graph/fredgraph.png?g=195mP With the lowered effective tax rate, we see a much bigger gain in after-tax income, up 8.1% YoY in H1 2023. Now layer in inflation, much reduced from 2022: https://fred.stlouisfed.org/graph/fredgraph.png?g=195mw https://fred.stlouisfed.org/graph/fredgraph.png?g=195mw Things look much brighter with less inflation, and brackets/deductions that caught up with inflation Keep in mind these data are from BEA’s monthly personal income tables. The article is from a separate Census Bureau survey, that tells largely the same story with different numbers

doctorpangloss 3y ago

How does that explain an 8.8% drop? I get that it's a factor, but I wouldn't call it "largely." I mean it's right there in the article, "the expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty." I'm not sure how the top ranked comments, both of them, get things so wrong. However you are definitely onto something sophisticated so... can you comment on the substance of the article instead of this kind of arcane thing that couldn't be the biggest factor?

TradingPlaces 3y ago
Sorry, should have been more precise: “Besides high inflation…” Sorry, I sometimes skip stating priors. Bad habit Start with nominal income, YoY. Personal income is before-tax, disposable personal income is after-tax https://fred.stlouisfed.org/graph/fredgraph.png?g=195kL https://fred.stlouisfed.org/graph/fredgraph.png?g=195kL Nominal incomes were up 2.3% in 2022, but after tax incomes were down 0.3%. Wage inflation had pushed people into higher tax brackets, and the standard deduction covered a smaller portion. That did not get corrected until Jan 2023, when brackets and deductions all went up over 7%. So the big takeaway is that nominal wage gains in 2022 were all eaten up by higher taxes, and that’s before we layer in inflation. Now, lets layer in inflation: https://fred.stlouisfed.org/graph/fredgraph.png?g=195ll https://fred.stlouisfed.org/graph/fredgraph.png?g=195ll But now let’s add in H1 2023. First, nominal https://fred.stlouisfed.org/graph/fredgraph.png?g=195mP https://fred.stlouisfed.org/graph/fredgraph.png?g=195mP With the lowered effective tax rate, we see a much bigger gain in after-tax income, up 8.1% YoY in H1 2023. Now layer in inflation, much reduced from 2022: https://fred.stlouisfed.org/graph/fredgraph.png?g=195mw https://fred.stlouisfed.org/graph/fredgraph.png?g=195mw Things look much brighter with less inflation, and brackets/deductions that caught up with inflation Keep in mind these data are from BEA’s monthly personal income tables. The article is from a separate Census Bureau survey, that tells largely the same story with different numbers