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Inflation And Income Tax Bracket

A certain amount of inflation is a necessity in a capitalistic economy.  The upside of a small amount of inflation is that it reduces the real amount of debt one owes, causes some investments such as real estate to increase in value and makes workers feel better because it helps their wages to increase over time.  The downside of inflation is that it can devastate the real value of savings and the real amount of income of those on fixed incomes such as retirees.

Another downside of inflation is that it causes wage earners incomes to creep into higher tax brackets.  Income tax rates are generally structured so that the more one makes the higher the tax bracket.  However, tax brackets are not adjusted for inflation and this causes wage earners more in taxes over time.

As an example, a worker making, say, $50.000 per year may find himself in a 20% tax bracket.  In several years, inflation may have increased the worker's cost of living by 20% or more, so he needs to be making $60,000 just to stay even.  The way Congress structures income tax brackets, they don't change over time for inflation.  So, the worker, by earning $10,000 more per year, may now be in the 25% tax bracket, yet his wages buys him no more than it did when he was making $50,000.  In effect, the government has increased the workers taxes just through inflation.

Congress knows inflation will push people into higher tax brackets over time and will cause increased tax rates on the median income.  That's one reason they like the the Federal Reserve to allow some inflation to exist in the economy and only reign in growth in the face of hyper inflation.

 

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Inflation And Tax Bracket News
GN News

Mike Pence Says Democrats Want All Of Bush Tax Cuts To Expire PolitiFact
Seattle TimesMike Pence says Democrats want all of Bush tax cuts to expirePolitiFactFor simplicity, we39re ignoring modest adjustments for inflation. Tax brackets for other categories such as individual filers broadly follow the same pattern Tax hikes ahead: Class warfare economicsThe Union LeaderObama administration commits to letting taxes on wealthy increaseAtlanta Journal Constitution blogall 641 news articles raquo

Gibbs Misleads Public On Obamaaposs Broken Tax Pledge Americans For Tax Reform
Gibbs Misleads Public on Obama39s Broken Tax PledgeAmericans for Tax ReformI did not pay taxes in 1989 when he made his campaign promise because I was 11, but I have been in one of the highest tax bracket, under Bush and Obama, and more raquo

Research Desk Responds: How Much Could We Make From Taxing Millionaires Wash...
Research desk responds: How much could we make from taxing millionairesWashington Post blogSilver39s specific proposal a 40.5 percent income tax bracket on incomes of more than 1 million does not have a revenue estimate, but if you39ll recall and more raquo

South Carolina Republicans Can Learn From Ronald Reagan Part 2 Examiner.com
South Carolina Republicans can learn from Ronald Reagan part 2Examiner.comB. Index state income tax brackets: The most insidious tax increase is when inflation pushes us into a higher tax bracket. Taxes should be based upon real and more raquo

8 Financial Tips For Seniors Who Work U.S. News Amp World Report Blog
8 Financial Tips for Seniors Who WorkU.S. News World Report blogIt also may drive them to seek jobs at firms without mandatory retirement rules. 1 Watch Your Tax Bracket. The Bush tax cuts expire next year. and more raquo

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