The Fate of the Standard Deduction
In 2017 the standard deduction for married couples filing jointly was $12,700, and was used by 68% of taxpayers. It was set to grow to $13,000 in 2018. Instead, under the Tax Cuts and Jobs Act of 2017, the standard deduction for couples was lifted to $24,000. This was not as significant a tax break as it first appears, because the personal exemption, worth $4,050 per dependent, was eliminated at the same time. Nevertheless, the change was simplifying for many taxpayers, because by 2023 91% of taxpayers took the standard deduction instead of itemizing.
Due to inflation, the standard deduction for couples has grown to $30,000 this year. However, that change is scheduled to expire at the end of the year.
Writing for the American Association of Individual Investors, Charles Rotblut observes that the old standard deduction would have been adjusted for inflation just as the current one has been. According to his calculations, the smaller standard deduction would have grown to $16,200 by this year. If Congress does not act, next year’s standard deduction will be something in that neighborhood.
If you have the feeling that the inflation adjustments to the standard deduction seem low, you are not wrong. The 2017 tax reform adopted the chained consumer price index instead of the traditional CPI for determining the inflation adjustments to the tax code. This change does not expire at the end of the year. The chained CPI accounts for the way consumer behavior is altered as prices change, with the result that inflation adjustments are lower.
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