Surprise Tax Savings on Hand as IRS Adjusts for Inflation

By Yuval Rosenberg

Good Wednesday evening! We’ve got some good news on taxes and more on the debt limit and the Republican agenda for 2023. Let’s jump right in.

Surprise Tax Savings on Hand as IRS Adjusts for Inflation

With inflation hitting levels not seen in four decades, the IRS’s annual adjustment of tax brackets and standard deductions is larger this year, producing potential savings for millions of American workers starting in 2023.

The standard deduction will increase by $900 to $13,850 for single filers next year, and by $1,800 to $27,700 for married couples filing jointly.

Tax brackets are moving higher, too, which means that more of an individual’s paycheck will be taxed at a lower rate. The 22% tax rate, for example, will kick in at $44,726 for individuals and $89,451 for married couples filing jointly. This year, by comparison, those income levels are $41,775 and $83,550 respectively. (See the chart below from Axios with all the brackets for 2023.)

“It is very likely that you would see more in your paycheck starting in January [due to the IRS inflation adjustments, which] tend to result in lower withholding for a given level of income,” Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting, told CNN.

Biden Releases More Oil From Reserves, Awards $2.8 Billion to Battery Makers

The Biden administration is awarding $2.8 billion in federal grants to 20 companies that are involved in the production of electric vehicle batteries, the White House announced Wednesday. The funding for the grants was provided in the $1.2 trillion Infrastructure Investment and Jobs Act that President Joe Biden signed into law last November.

The grants will focus on the supply chain of materials needed to produce electric vehicles, with an emphasis on developing domestic sources and processing capabilities of key materials including lithium, graphite and nickel. China and other foreign producers currently dominate the supply of many crucial components used in electric vehicles.

One project receiving funding involves building the first large-scale commercial lithium electrolyte salt production facility in the U.S., with the goal of producing enough lithium for 2 million electric vehicles per year, the Energy Department said. (For more details on the projects being funded, see this White House Fact Sheet.)

“Producing advanced batteries and components here at home will accelerate the transition away from fossil fuels to meet the strong demand for electric vehicles, creating more good-paying jobs across the country,” Energy Secretary Jennifer Granholm said in a statement.

Fossil fuels still in focus: Biden addressed more immediate energy concerns by releasing 15 million barrels of oil from the U.S. strategic reserve. The move, which completes a drawdown of 180 million barrels the president authorized earlier this year, comes after a group of oil-producing nations led by Saudi Arabia announced cutbacks in production of up to 2 million barrels a day to boost prices – and ahead of a crucial midterm election in which voters are expressing worries about rising prices for all kinds of essentials, including gasoline.

In remarks delivered at the White House, Biden emphasized the substantial decrease in fuel costs since summer. “Let me repeat: Gas prices have come down and they continue to come down again,” he said. “But they're not falling fast enough.”

Gasoline prices are still higher than many consumers — and the White House — would like. While the average price per gallon of gas has fallen to $3.85 from a high of $5 in June, it’s still well above the pandemic-influenced level of $2.40 per gallon in place when Biden was inaugurated.

The withdrawal leaves the supply of oil in the U.S. strategic reserve at about 400 million barrels, the lowest level in nearly 40 years. The administration says it will start to refill the reserve when oil prices drop below about $70 a barrel, or $15 lower than the current price.

Biden denied that the move is politically motivated, but his partisan critics took raised questions about the timing of the release. “Our oil reserves do not exist to win midterms,” Republican Sen. Marco Rubio of Florida said Tuesday. “They exist to help this country in an emergency or in the midst of a storm.”

McCarthy Looks to Defuse Fears That GOP Would Slash Social Security

House Republican Leader Kevin McCarthy on Wednesday tried to assuage any fears that the GOP would look to slash Social Security and Medicare as part of a plan to leverage the debt ceiling to force federal spending cuts.

As we told you yesterday, McCarthy had indicated to Punchbowl News that his party would look to use the debt limit to force spending cuts if it wins control of the House in next month’s midterm elections. Punchbowl’s Jake Sherman reported Tuesday that McCarthy said he wouldn’t “predetermine” whether entitlement reforms would be part of that debate. Other GOP leaders, meanwhile, have recently suggested changes to Social Security and Medicare, including some who have proposed forcing cuts to the programs in conjunction with raising the debt limit — a strategy that carries enormous risks given that failure to raise the debt limit could cause global financial chaos.

In a Wednesday morning interview with CNBC, McCarthy said he never brought up the entitlement programs in his Punchbowl News interview and pointed instead to a one-line promise to strengthen the programs contained in House Republicans’ “Commitment to America” agenda for next year.

“Let me be very clear, I never mentioned Social Security or Medicare. Actually, in the ‘Commitment to America,’ we say to strengthen Social Security and Medicare,” McCarthy told CNBC.

McCarthy acknowledged that the debt ceiling needs to be lifted but argued that spending cuts should be part of that process. “The question was, would you just raise the debt ceiling without having a discussion, not about entitlements but about our spending behavior right now? And my question would be, we have to change our behavior. We can’t continue down this path.”

The initial Punchbowl News report spurred numerous other news articles — and criticism from top Democrats, with House Speaker Nancy Pelosi’s office warning: “Top House Republicans are being increasingly open about their plans to hold the debt limit hostage to force through their extreme plans to slash Medicare and Social Security.”

Pelosi’s press office also pointed to a plan released earlier this year by the Republican Study Committee that proposed to raise the eligibility age for Medicare and Social Security to 70 and would open the door to private retirement savings alternatives, among other changes. Those proposals wouldn’t apply to current retirees but would kick in for those who reach early retirement age by fiscal year 2030.

Republicans said those proposed changes would help preserve Social Security and ensure its long-term solvency, but Pelosi’s office warned that, “With three out of four House Republicans endorsing these plans to dismantle Medicare and Social Security, it’s clear the House GOP is reaching dangerous new levels of extremism.”

What it all means: Republicans have pledged to “save and strengthen Social Security and Medicare” as part of their agenda if they take control of the House. Democrats argue — with some evidence to back them up —that Republicans really mean to “save and strengthen” the programs by slashing them.

Lawmakers will have to address the long-term outlook for the popular safety net programs if they want to shore up Medicare's finances and avoid steep cuts to Social Security benefits — but trying to do so as part of a debt limit showdown could be dangerous and less than effective.

Quote of the Day: Pelosi Acknowledges Dems Have a Problem

“Inflation’s an issue, but it’s global. It’s global. … What’s [the Republicans’] plan? They ain’t got nothing. When you bring down unemployment, inflation goes up. … So in any case, [President Joe Biden] brought unemployment [down], cut it in half. Inflation is there but it’s global and not as bad as it is in some countries. We’ll have to message it better in the next three weeks ahead. I think we’re in great shape. Other people don’t want to believe that.”

– Pelosi (D-CA), in another interview with Punchbowl News, defending President Biden while also admitting that Democrats need a better message on inflation, which along with the economy overall is a top concern for voters. A new poll by The New York Times and Siena College found that 26% of registered voters call the economy the most important problem facing the country while another 19% cite inflation.

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