Is inflation eating your savings? How the 'Big Beautiful Bill' offers some relief

USA Today

2 days ago

President Donald Trump's tax and spending package introduces annual inflation adjustments on many new items that will give Americans much needed help to better keep up with rising prices, even if it may reduce government revenue for programs.
The mega tax law, dubbed Trump's Big Beautiful Bill,has made more items 'indexed to inflation,' or set to receive an automatic cost-of-living adjustment each year. Americans already see these annual inflation adjustments in Social Security benefits, for example.
The adjustments help preserve purchasing power or stave off an increase in tax burdens because of inflation. Without indexing, the value of benefits would decrease over time, analysts said.
How Child Tax Credit lost value
Th popular Child Tax Credit (CTC) is a prime example of how an unindexed tax provision gets eroded over time, analysts said. From 2018 to 2024, the CTC's $2,000 maximum value and its income eligibility thresholds have remained the same.
"The bout of unexpectedly high pandemic-era inflation means that the CTC's real value has been eroded in recent years," wrote John Ricco, associate director of policy analysis at The Budget Lab at Yale, in April. If it had been indexed to inflation, the CTC's value would have been $2,600 by 2026, he said.
Additionally, fewer parents in 2026 (87%) would have benefitted than in 2018 (91%), he estimated. "But the per-child average benefit, expressed in 2026 dollars, would fall from $520 in 2018 to $400 in 2026 − a decline of one-quarter," Ricco said.
What new items will the new tax and spending act adjust for inflation?
Items that will begin being indexed for inflation in 2026 include:
Beginning in 2028, the $5,000 so-called "Trump account" and $2,500 employer contribution to such accounts will become inflation adjusted.
'This is something we've needed for some time,' said Rob Burnette, investment adviser representative and professional tax preparer at Outlook Financial Center. Americans are hurt without inflation adjustments, he said.
Why isn't everything indexed to inflation?
But even though inflation adjustments are positive for taxpayers, the Treasury loses necessary revenue to fund programs when they're in place, some financial experts say.
'Indexed for inflation is always good for a taxpayer,' said Richard Pon, a certified public accountant in San Francisco. 'Unfortunately, not all amounts are indexed for inflation as that would increase tax benefits and decrease Treasury revenue.'
For instance, those lawmakers who drew up the legislation in 1983 to tax Social Security chose not to adjust the thresholds to inflation so that eventually everyone would pay income tax on benefits, Senate records show. More revenue collected from taxing Social Security help keep the fund solvent.
In 2023, 3.8% of the Social Security trust fund's income came from taxing those benefits, according to the 2024 Social Security Trustee Report. That's forecast to rise to 6.6% in 2033 as more people pay taxes on their benefits.
Income thresholds to determine who must pay taxes on Social Security benefits have not been adjusted for inflation since taxes on the benefits were introduced in 1984. That means with each passing year, an increasing proportion of seniors have been reaching those low thresholds and paying taxes on their benefits.
In 2021, about half of beneficiaries paid income tax on their Social Security benefits, according to the Congressional Budget Office. By 2050, that's expected to rise to more than 56%, a Social Security analysis said in 2015.
'To be responsible about it, there would be a need to find revenues to replace what would be lost,' said Jordan Gilberti, senior lead planner and certified financial planner at financial advisory Facet.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [e-mail] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.