Why Minimum Wage And Tax Breaks Aren’t Adjusted For Inflation

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Via Pexels
Adé Hennis
July 5, 2024

Financial mechanisms like 401k plan contribution limits, federal income tax brackets, and social security are adjusted annually for inflation. According to CNBC, this helps avoid households creeping into higher tax brackets and decreases the buying power of social security beneficiaries.

Federal minimum wage, social security taxes, thresholds for becoming an accredited investor, mortgage interest tax deductions, and net investment income tax are some of the financial mechanisms that reportedly aren’t affected by inflation.

The federal minimum wage of $7.25 per hour hasn’t been raised since 2009. And that minimum wage is now worth 29% less because of increases in the cost of living, according to the Economic Policy Institute (EPI).

Currently, 34 states have a state minimum wage higher than the federal minimum.  This year California reportedly raised its state minimum to $16 per hour for all employees, one of the highest in the nation.

“To protect the equity gains created by the recovery [from the pandemic], even states that have been raising their minimum wages can do more,” says EPI. “States with ballot measures or legislative increases helped their low-wage workers, but inflation cut into the economic security these policies were meant to achieve.  Without proactive action, when labor market conditions change to be less favorable to workers, the gap between low-wage and middle-income workers will likely grow again.”