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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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Sask. Income Tax Brackets Not Indexed To Inflation CTV News
CTV News Sask. income tax brackets not indexed to inflation CTV News Saskatchewan39s government is continuing a tax measure that39s gone relatively unnoticed since it was introduced in last year39s budget. The move summarized in a sentence on page 10 of this year39s budget again suspends the indexation of income tax

Mississippi House Speaker Proposes Tax Swap To Fund Bridge Repair Tax Founda...
Tax Foundation Mississippi House Speaker Proposes Tax Swap to Fund Bridge Repair Tax Foundation Speaker Gunn said his tax swap proposal, which he plans to submit to Governor Bryant and Lieutenant Governor Tate Reeves R, would eliminate an income tax bracket while increasing the tax rate on fuel. This proposal aims to redirect funding that would

Your Simple Guide To The New Capital Gains Tax Rates MarketWatch MarketWatch
Your simple guide to the new capital gains tax rates MarketWatch MarketWatch If you39re confused about how the new tax law affects capital gains and dividends, you39re not alone. and more raquo

Gov. Ricketts Signs Tax Relief For Nebraskans On National Tax Day KTIC
KTIC Gov. Ricketts Signs Tax Relief for Nebraskans on National Tax Day KTIC LINCOLN Today, Governor Pete Ricketts signed LBs 1089, 1090 and 738, which ease the tax burden on Nebraskans and make key adjustments to Nebraska39s tax code in light of federal tax reform. The Tax Cuts and Jobs Act has been a big win for families Ricketts signs 3 bills to avoid looming tax increases91.5 KIOS FM Nebraska Governor Ricketts Signs Tax Relief for Nebraskans on STL.News blog all 16 news articles raquo

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Facts of Law about consumer inflation

Facts of Law - Inflation