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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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The Nearly Invisible Trump Tax Plan Proposal That Could Threaten Social Secur...
Yahoo News The Nearly Invisible Trump Tax Plan Proposal That Could Threaten Social Security Yahoo News Although this shift would have a direct impact on the way that tax brackets and deductions get indexed for inflation, use of the chained CPI in one government context might well lead lawmakers to apply it to other situations as well such as Social and more raquo

Wolters Kluwer Predicts 2018 Inflationadjusted Tax Limits Accounting Today
Accounting Today Wolters Kluwer predicts 2018 inflation adjusted tax limits Accounting Today Wolters Kluwer Tax amp Accounting released its estimates Monday of tax bracket ranges and other inflation adjusted tax figures, including the standard deduction and personal exemption level, predicting the biggest tax savings in 11 years no matter what 2018 Tax Tables and Brackets: Deductions Go UpCPAPracticeAdvisor.com New Inflation Estimates from Wolters Kluwer Offer First Look at Impact for Taxpayers in 2018Business Wire press release all 3 news articles raquo

New Report: GOP Tax Reform Could Boost Household Income By 4000 Daily Signal
Daily Signal New Report: GOP Tax Reform Could Boost Household Income by 4000 Daily Signal It calls for roughly doubling taxpayers39 standard deduction an individual39s first 12,000 of income would become tax free, as would the first 24,000 for married couples and for condensing the current seven tax brackets to three. Depending on their and more raquo

AposHidden Tax Increaseapos Is Neither Hidden Nor An Increase The Hill
The Hill 39Hidden tax increase39 is neither hidden nor an increase The Hill Congress therefore indexed income tax brackets to CPI. However, this was an imperfect measure of the effects of inflation. When a good39s price increases, consumers are not forced to continue purchasing that good they often instead substitute that

Middleincome Earners Probably Wonapost Be Paying As Much Tax As The Governmen...
The Conversation AU blog Middle income earners probably won39t be paying as much tax as the government expects The Conversation AU blog The PBO modelling shows that people in the middle of the income spectrum will bear the brunt of this, due to bracket creep. This occurs when tax thresholds including the tax free threshold stay constant while income grows due to inflation. But the

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Facts of Law about consumer inflation

Facts of Law - Inflation