TRENTON, N.J. – The Internal Revenue Service adjusted tax brackets for 2023 by about 7% in an attempt to counter rapid inflation, the IRS said in a statement on Tuesday. But state tax brackets haven’t changed since 1996.
That could mean New Jersey workers whose wages haven’t kept pace with inflation might see lower federal taxes next year while still getting hit with higher state taxes.
“Inflation is a hidden tax increase in New Jersey,” said Assemblywoman Nancy Munoz (R-Union), who has been pushing since 2016 for the state to adjust its brackets for inflation. “It pushes your tax bill higher even when your earnings buy you less.”
She sponsors legislation (A4324) with Assemblymen John DiMaio and Hal Wirths that would adjust the income threshold of the state’s four lowest tax brackets to account for the effects of inflation since January 2000 – which is about 68%. It also eliminates the $50,000 tax bracket for joint filers creating a marriage penalty built into the tax code.
Married couples who file a joint tax state return and earn $110,000 would see their tax reduced by about $1,600, while a single filer earning $70,000 would get a reduction of $1,000.
When the 6.37% tax bracket took effect in 1996, it was the state’s highest tax rate.
At the time, a person with $75,000 in income was considered upper-middle class. After 26 years of inflation, it takes $138,000 to have the same purchasing power as a person earning $75,000 in 1996, but workers with that salary have had their taxes more than triple.
“The last time tax brackets were adjusted, nobody thought it would be appropriate to charge low-income and middle-class people such high rates, and we shouldn’t accept it today,” exclaimed Munoz.
Today, 18 of 33 states with a progressive income tax adjust for inflation annually, including states where Democrats control state government like California, Maine, Oregon and Rhode Island.
“It’s a practice embraced by blue and red states alike,” explained Munoz. “Quite honestly, I don’t understand why the Democrats aren’t picking this up and running with it.”
Munoz pressed for a vote in the Assembly in June but her motion was tabled by a 42-31 party line vote.
“They must not think inflation is a problem,” concluded Munoz. “They couldn’t be more wrong.”
Because inflation is higher than at any time in the past four decades, the adjustments made by the IRS are the largest since the federal government began adjusting for inflation in 1985.
The Social Security Administration similarly last week announced the largest cost-of-living adjustment to benefits in four decades.