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
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.
Inflation And Tax Bracket News
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• The Tax Lawaposs New Way Of Measuring Inflation Could Take A Toll On Taxpayer...
NPR The Tax Law39s New Way Of Measuring Inflation Could Take A Toll On Taxpayers NPR A little remarked upon provision changing the way inflation is calculated is among the big changes contained in the tax overhaul signed by President Trump last week. The new method, using the so called quotchainedquot consumer price index to determine when Trump39s New Inflation Measure May Push Many Into Higher Tax BracketNewsmax Measurement Tool Used In New Tax Bill Will Impact Deductions And BracketsWUWM NPR thinks it39s found a way the tax cut raises your taxes. It39s wrong.Canada Free Press Bureau of Labor Statistics Joint Committee on Taxation Brookings Institution all 8 news articles raquo
• How Chained Inflation Will Erode The New Tax Cuts Kiplinger Kiplingeraposs ...
How Chained Inflation Will Erode the New Tax Cuts Kiplinger Kiplingeraposs Personal Finance It will result in lower inflation adjustments, so there will be smaller annual increases in tax brackets, standard deductions and other breaks. and more raquo
• Bracket Creep Seeking Alpha
Seeking Alpha Bracket Creep Seeking Alpha Bracket creep describes the process by which inflation pushes wages and salaries into higher tax brackets, leading to a fiscal drag situation. Given most progressive tax systems are not adjusted for inflation, as wages and salaries rise in nominal
• The Big, Permanent Tax Increase Inside The Tax Cut Act Bloomberg
Bloomberg The Big, Permanent Tax Increase Inside the Tax Cut Act Bloomberg substitutesquot and concluded that quotCongress and the President must decide whether they wish to continue the widespread overindexing of various federal spending programs and features of the tax code.quot In response, in August 2002, the BLS began and more raquo
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