Carmen LaBerge Faith Radio
Bill English is back from Bible and business. All right, Bill, most people think about brackets as something that we talk about related to basketball and something called the final four. But we’re going talk about tax brackets and how inflation is affecting our tax bracket. So good morning and Merry Christmas.
Bill English
Good morning. Merry Christmas. And yes, our tax brackets from the IRS are indexed to inflation. So as the inflation rate rises, the IRS provides tax inflation adjustments in our tax brackets. So, for example, the standard deduction for married couples filing for the tax year 2023 is going to rise to $27,700, which is $1,800 up from 2022. If you’re a single taxpayer or married person filing independently, you’ll get a $900 bump in your standard deduction. So as the inflation rate goes up, the tax brackets also go up.
Carmen LaBerge Faith Radio
Okay, so this is good news.
Bill English
Yeah.
Carmen LaBerge Faith Radio
It doesn’t sound like I know that you think I can think about math this early in the morning, but you would be wrong. My tax bracket is not changing, but some rule within my tax bracket is changing.
Bill English
The percentages don’t change, but the thresholds for getting into those brackets change. They go up. In other words, let’s take a couple filing jointly, they’re married, and they are $95,000 a year. In 2022, their tax rate would have been 24%. In 2023, the rate drops to 22% because they didn’t hit the threshold to be in the 24% tax bracket. Does that make sense? No, it doesn’t. I can tell by your.
Carmen LaBerge Faith Radio
Just say that part again. Okay, so we’ve got a couple. Let’s say they’re making together $95,000, right? Okay. What would have been true of them in 2022 that will now not be true of them in 2023.
Bill English
In 2022, they would have been in the bracket for 24%. In 2023, they will be in the bracket for 22% because the amount of dollars needed to get into the 24% bracket went up by 7%. So.
Carmen LaBerge Faith Radio
It’S connected to inflation, right?
Bill English
Exactly.
Carmen LaBerge Faith Radio
If you say it enough times, I eventually get it.
Bill English
Yeah. In 2022, you needed to earn $89,000 in order to get into the 24% tax bracket. In 2023, you’ll need to earn $95,000 in order to get into that same tax bracket. Okay. So if your income stays the same, chances are reasonably good that you’re going to be in a lower tax bracket in 2023 than you were in 2022 because the IRS is indexing the tax brackets to inflation.
Carmen LaBerge Faith Radio
Okay, so does that mean I’m likely to get a refund because I paid in as if I were in the higher one?
Bill English
No. Your deductions in 2023, what your employer withholds, will be on the 2023 brackets. So all things being equal, you’ll either get the same refunds or no refunds.
Carmen LaBerge Faith Radio
I’m just looking I’m just looking for any good news this morning. Okay. Apparently car repossessions are about to really hit the accelerator. Can we talk about that next? Like, how people have ended up so upside down in car loans. Can we talk about that next?
Bill English
Yeah, actually we can. This is a story from NBC News and they’re reporting that we’re falling behind on our car payments. So auto repossessions are up. This is because there’s higher car prices and prolonged inflation, and the two of those things are creating a real strain on household budgets. Okay, so let’s go back. Pre pandemic repossessions fell because Americans got a boost from the stimulus checks. Lenders were more accommodating to those who were behind on their payments. But in recent months, people have burned through all that stimulus money that they got, and the number of people behind on their car payments has been approaching the pre pandemic levels and the rate of loan defaults is now exceeding. The auto defaults is not exceeding what it was in 2019. But there’s another substory here, and that is that if you’re in the repossession business, this is a boon. Right. During the pandemic, the repossession company shrunk by about 30%. A lot of workers went and found other work and a number of the repossession companies went out of business. Now the lenders are actually paying these repossession companies premiums to jockey for position to get ahead of other lenders who also need their cars, repossessed who are in default.
Bill English
So you have really two stories here. One is that repossessions are up because people can’t afford their car payments due to inflation and the lack of the stimulus money. In other words, they took out loans they probably shouldn’t have taken out. But number two, the repossession business is a great business to be in right now and they are really doing well. They’re just doing well.
Carmen LaBerge Faith Radio
Okay, so a couple of quick things. If you know you’re at risk of this, take your personal possessions out of your car because your car can be repossessed pretty much at any time and they’re going to auction it off within 30 days. So if you do have personal possessions in there, they can’t keep those, but you have to go get them before they auction your car off. So there you go. And I guess maybe if you’re looking for a car, they’re going to be a lot of really good cars at public auction in the coming weeks and months. All right, Bill and I are going to take a very brief break. When we come back, we’re going to have Bill look a little bit over the horizon. This will not surprise you if you listen to Bill on any regular basis, but he sees some clouds ahead. So we’re going to do a little forecasting beyond 2023 to get this. 2032? Yes. This is a long look. Up next here on Mornings with Carmen gee, I wish I was back in the army. The army wasn’t really bad at all. Okay, so you might be wondering, why are we playing this particular song?
Carmen LaBerge Faith Radio
Apparently this is Bill English’s favorite song from his favorite Christmas movie. That’s not a Christmas song or a Christmas movie. Explain, sir.
Bill English
Oh, come on. White christmas is a Christmas movie. That’s from White Christmas. Bing Crosby. I always thought of it as I’m.
Carmen LaBerge Faith Radio
Not a movie person, and I’m definitely not a watch a movie more than once person, so I am so out of my depth. Yes.
Bill English
Oh, my gosh. You’ve never watched Princess Bride more than once.
Carmen LaBerge Faith Radio
Okay, so there are a handful of movies that I have watched more than once, and then that is on the list. Amazing Grace is on my list. Princess Bride. There’s one about a lion. It’s very funny. It’s about two old guys.
Bill English
Yeah. Secondhand lions.
Carmen LaBerge Faith Radio
Yes. Secondhand lions.
Bill English
I’ve watched secondhand lions.
Carmen LaBerge Faith Radio
Yeah. But my list of will watch a movie more than once, that list is really short. And Christmas is really hard because there’s just a handful of movies that everybody wants to watch over and over and over again, and I find that so tiresome.
Bill English
Well, we live in two different worlds, Carmen.
Carmen LaBerge Faith Radio
I know. It’s okay. All right, speaking of the world and the world that you see on the horizon yes, ma’am. Let’s do a little forecasting. Why? Why are we looking ahead to 2032, which is nine years away? Like, why why look to 2032, and what do you see when you look there?
Bill English
Because we’re looking at this because the Congressional Budget Office is now projecting that in 2032, we will spend 1.2 trillion that’s trillion dollars just on interest on the debt that we will have accumulated by then. So in this year, we’re spending 400 billion. If that isn’t enough, we’re spending 400 billion this year on interest on our national debt. That’s going to triple by 2032, and that’s only ten years from now. It’s really not that far out. And they are projecting CBO projects will spend $8 trillion just on interest payments over the next ten years. And over the next 30 years, they’re projecting we will spend $66 trillion just on interest payments. I’m really going to go out here now. If you think 2032 is a long way, I’m going to go to 2052 by then, 30 years from now, it is projected that interest costs will be the largest expenditure of the federal government eclipsing, defense, Medicare, and Social Security. And to my way of thinking, we’re on an unsustainable path, and we need our leaders to actually lead and come up with some solutions here.
Carmen LaBerge Faith Radio
Okay, so let’s talk about that. Not only unsustainable, it’s really hard to imagine that we would be spending more on interest payments than on everything else. Like, it’s going to eclipse everything else within 30 years. 30 years is actually not that long of a period of time. No, it’s not. Policy makers, clearly, if you’re reading this and know about it, other people know about it. This is actually not something you can just keep putting off. So talk with us about? I don’t know. What are the positive ways this needs to be addressed right now?
Bill English
Well, there’s a structural imbalance between how much we take in as a nation at the federal level and how much is going out. We’re running trillion dollar deficits every year. That has to stop. We have to start living within our means. Either we need to raise taxes, which I think we need to do, and we need to cut spending, which I think we need to do, and we need to start on an annual basis, not spending more than what we’re taking in. That’s step number one. Then step number two, which is the really tough part. We need to start paying back the debt and actually over tax people a little bit every year and start paying back this debt. We cannot, for the long term, continue to spend more than what we have and expect our country to remain solvent. At some point, we go bankrupt. And when we go bankrupt, the party ends. There just won’t be any money for Social Security. There won’t be any money for defense. There won’t be any money for education, infrastructure projects. The whole thing comes to a screeching halt, in my estimation. And we have to start living within our means.
Bill English
And this means we can’t look at this as a Republican or a Democrat problem. We have to look at this as an American problem that we, the people need to solve.
Carmen LaBerge Faith Radio
On that joyful note no, I mean, you’re right. It’s true of each and every one of us individually. It’s true of our households, and it’s true of we the people as a nation. And so, Bill, don’t allow us to turn away from this, although we might be tempted to do so. So you continue to raise this issue, and we will continue to talk about it in earnest in the new year. Agreed?
Bill English
Agreed. Deal. You got a deal.
Carmen LaBerge Faith Radio
That’s good. That’s good, because somebody has to be talking about it, and it might as well be us. There you go. He might as well be. Yes. So that’s Bill English. You can find him@bibleandbusiness.com. Or apparently this time of year, watching Christmas movies that may or may not be Christmas movies.
Bill English
Oh, come on. White Christmas. It’s a great movie.
Carmen LaBerge Faith Radio
Just getting a hard time. Hey, we love you. Merry Christmas.
Bill English
Love you too. Take care.
Carmen LaBerge Faith Radio
All right.
Bill English
Merry Christmas.
Carmen LaBerge Faith Radio
Let’s take a break for breakpoint.