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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
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Russell Wangersky: Score One For The Senate And Taxpayers The Telegram
The Telegram Russell Wangersky: Score one for the Senate and taxpayers The Telegram I think I agree with Conservative senators. There. That wasn39t so hard to say after all. and more raquo

Hawthorne Voters Will Be Asked To Increase Sales Tax Rate To Bail Out City T...
The Daily Breeze Hawthorne voters will be asked to increase sales tax rate to bail out city The Daily Breeze Trying to stave off deep cuts in basic services at a time when the city is trying to launch a rebirth, Hawthorne will ask voters in November to add three quarters of a cent to its sales tax rate. The City Council voted unanimously Tuesday night to

Best Cash ISA For Soaring Inflation, Kent Reliance Illustrates The Great ISA ...
The Market Oracle Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off The Market Oracle However there is a glimmer of hope for people with children, in fact children under the age of 18 can be utilised to park long term savings with tax free AND the rates typically can be near double the adult rate For instance the current best rate is and more raquo

FMCG Companies May Not Make Higher Profits On Lower GST Rates Economic Times
Mid Day FMCG companies may not make higher profits on lower GST rates Economic Times The government wants to ensure that the introduction of GST does not lead to inflation. Hence, it is keen to ensure that tax rate reductions are passed on to customers in the form of lower prices and has, therefore, introduced the anti profiteering It39s time to smile: GST to usher in a new eraDeccan Chronicle GST will end terrorism by tax officials: Sudhir MungantiwarMid Day all 238 news articles raquo

High GST Rate On Cables, Wires, Electronic Components To Lead To Inflation B...
Business Standard High GST rate on cables, wires, electronic components to lead to inflation Business Standard Fearing higher GST rates on wires, cables amp electronic components could have a crippling effect on the manufacturers, industry associations have demanded lower GST rate of 18 percent for these key products. While the current effective tax rate for

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Facts of Law about consumer inflation

Facts of Law - Inflation