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Bracket Creep
Bracket creep is usually defined as the process by which inflation pushes wages and salaries into higher tax brackets, leading to fiscal drag. However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate will increase. Most progressive tax systems are not adjusted for inflation. As wages and salaries rise in nominal terms under the influence of inflation they become more highly taxed, even though in real terms the value of the wages and salaries has not increased at all. The net effect is that in real terms taxes rise unless the tax rates or brackets are adjusted to compensate. Examples Suppose a person earns $20,000 per year and is liable to 20% tax on earnings above a threshold of $5,000 per year. Then they pay ($20,000–$5,000)*0.2 = $3,000 in taxes, or 15% ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. The employment cost index is also used for wages in the United States. Most economists agree that high levels of inflation as well as hyperinflation—which have severely disruptive effects on the real economy—are caused by persistent excessive growth in the money supply. Views on low to moderate rates of inflation are more varied. Low or moderate inflation may be attri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tax Bracket
Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, though that is rarer). Essentially, tax brackets are the cutoff values for taxable income—income past a certain point is taxed at a higher rate. Example Imagine that there are three tax brackets: 10%, 20%, and 30%. The 10% rate applies to income from $1 to $10,000; the 20% rate applies to income from $10,001 to $20,000; and the 30% rate applies to all income above $20,000. Under this system, someone earning $10,000 is taxed at 10%, paying a total of $1,000. Someone earning $5,000 pays $500, and so on. Meanwhile, someone who earns $25,000 faces a more complicated calculation. The rate on the first $10,000 is 10%, from $10,001 to $20,000 is 20%, and above that is 30%. Thus, they pay $1,000 for the first $10,000 of income (10%), $2,000 for the second $10,000 of income (20%), and $1,500 for the last $5,000 of income (30%), In total, they pay $4,500, or an ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Fiscal Drag
Fiscal drag happens when the government's net fiscal position (spending minus taxation) fails to cover the net savings desires of the private economy, also called the private economy's spending gap (earnings minus spending and private investment). The resulting lack of aggregate demand leads to deflationary pressure, or drag, on the economy, essentially due to lack of state spending or to excess taxation. One cause of fiscal drag may be bracket creep, where progressive taxation increases automatically as taxpayers move into higher tax brackets due to inflation. This tends to moderate inflation, and can be characterized as an automatic stabilizer to the economy. Fiscal drag can also be a result of a hawkish stance towards government finances. Real fiscal drag Real fiscal drag takes place when tax thresholds are increased in line with price rises to avoid ''nominal fiscal drag'', but where a growing economy means that earnings rise faster still, so increasing taxes as proportion o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Progressive Tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progressive'' refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.Hyman, David M. (1990) ''Public Finance: A Contemporary Application of Theory to Policy'', 3rd, Dryden Press: Chicago, ILJames, Simon (1998) ''A Dictionary of Taxation'', Edgar Elgar Publishing Limited: Northampton, MA The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Government
A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a means by which organizational policies are enforced, as well as a mechanism for determining policy. In many countries, the government has a kind of constitution, a statement of its governing principles and philosophy. While all types of organizations have governance, the term ''government'' is often used more specifically to refer to the approximately 200 independent national governments and subsidiary organizations. The major types of political systems in the modern era are democracies, monarchies, and authoritarian and totalitarian regimes. Historically prevalent forms of government include monarchy, aristocracy, timocracy, oligarchy, democracy, theocracy, and tyranny. These forms are not always mutually exclusive, and mixed govern ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Real Income
Real income is the income of individuals or nations after adjusting for inflation. It is calculated by dividing nominal income by the price level. Real variables such as real income and real GDP are variables that are measured in physical units, while nominal variables such as nominal income and nominal GDP are measured in monetary units. Therefore, real income is a more useful indicator of well-being since it measures the amount of goods and services that can be purchased with the income. According to the classical dichotomy theory, real variables and nominal variables are separate in the long run In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints an ..., so they are not influenced by each other. In other words, if the nominal starting income was 100 and there was 10% inflation (gen ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Alternative Minimum Tax
The alternative minimum tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. As of tax year 2018, the AMT raises about $5.2 billion, or 0.4% of all federal income tax revenue, affecting 0.1% of taxpayers, mostly in the upper income ranges. An alternative minimum taxable income (AMTI) is calculated by taking the ordinary income and adding disallowed items and credits such as state and local tax deductions, interest on private-activity municipal bonds, the bargain element of incentive stock options, foreign tax credits, and home equity loan interest deductions. This broadens the base of taxable items. Many deductions, such as mortgage home loan interest and charitable deductions, are still allowed under AMT. The AMT is then imposed on this AMTI at a rate of 26% or 28%, with a much higher exemption than the regular income tax. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced the fracti ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tax Foundation
The Tax Foundation is an American think tank based in Washington, D.C. It was founded in 1937 by a group of businessmen in order to "monitor the tax and spending policies of government agencies". The Tax Foundation collects data and publishes research studies on U.S. tax policies at both the federal and state levels. Its stated mission is to "improve lives through tax policy research and education that leads to greater economic growth and opportunity". The Tax Foundation is organized as a 501(c)(3) tax-exempt non-profit educational and research organization, with three primary areas of research: the Center for Federal Tax Policy, the Center for State Tax Policy, and the Center for Legal Reform. The group is known for its annual reports such as ''Facts & Figures: How Does Your State Compare'', which was first produced in 1941, and its " Tax Freedom Day" brochures, which it has produced since the early 1970s. History The Tax Foundation was organized on December 5, 1937, i ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inflation Reduction Act Of 2022
The Inflation Reduction Act of 2022 (IRA) is a landmark United States federal law which aims to curb inflation by reducing the deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy. It was passed by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022. It is a budget reconciliation bill sponsored by Senators Chuck Schumer ( D- NY) and Joe Manchin (D- WV). The bill was the result of negotiations on the proposed Build Back Better Act, which was reduced and comprehensively reworked from its initial proposal after being opposed by Manchin. It was introduced as an amendment to the Build Back Better Act and the legislative text was substituted. The law, as passed, will raise $738billion and authorize $391billion in spending on energy and climate change, $238billion in deficit reduction, three years of Affordable Care Act subsidies, prescription drug reform to lower prices, and ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Income Taxes
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income. The tax rate may increase as taxable income increases (referred to as graduated or progressive tax rates). The tax imposed on companies is usually known as corporate tax and is commonly levied at a flat rate. Individual income is often taxed at progressive rates where the tax rate applied to each additional unit of income increases (e.g., the first $10,000 of income taxed at 0%, the next $10,000 taxed at 1%, etc.). Most jurisdictions exempt local charitable organizations from tax. Income from investments may be taxed at different (generally lower) rates than other types of income. Credits of various sorts may be allowed that reduce tax. Some jurisdicti ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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