The new measure in computing inflation
There are many subtle changes in the new law, some of which are quite insidious…
One change involves reducing the way inflation is computed. While I won’t get into the technical details of this, what it means to you is that it reduces the protection from what is known as “tax bracket creep.”
So what does tax bracket creep mean and how does it apply to you? Tax bracket creep means that as people earn more money, they tend to eventually reach higher tax brackets unless the brackets are adjusted for inflation. Thus, reducing the inflation effect on tax brackets will result in more people at the lower end of the income scale having to pay more in taxes in the future instead of less. This will also apply to upper wage earners too, but reducing the inflation of the brackets won’t affect upper-income earners as quickly as it would with lower income earners. Think tanks have estimated that by 2027 if no changes occur, everyone earning under $75,000 will pay more.
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