It's a similar story for deductions for interest paid on student loans. While the income limits to qualify for deducting the interest on student loans are adjusted annually for inflation, the maximum deduction—$2,500—is not, and has been in place since the early 2000s. (Student loan repayments have been frozen since March 2020 due to the Covid-19 pandemic.)
The hot housing market has also raised questions about why the amount homeowners are allowed to exclude from their taxes when they sell a primary home has been stuck since 1997 at $250,000 for single taxpayers and $500,000 for those married filing jointly. A report by the Congressional Research Service points out that the average price on the sale of an existing home has increased by 151% since then, and suggested that lawmakers consider indexing those numbers to general inflation or housing prices.
There are some tax issues where the argument for automatically indexing to inflation is more complicated. Under the current system, capital gains aren't indexed, so when someone sells a stock or home for a profit, the original purchase price isn't adjusted for inflation. Such a wholesale change would result in a significant budget deficit and disproportionately benefit the wealthiest taxpayers.
But there are many other places in the tax code where an annual nod to inflation would be an easier lift. If lawmakers are looking to make higher prices easier to bear, one of the most practical ways to start would be with actual inflation adjustments.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.