| Show Inflation pushes up taxes and reduces c buying power w r Inflation can push up tax lax bills and violate traditional concepts of equity without any explicit revision of the tax laws This was the conclusion reached by Utah Foundation the private tax lax research organization in an analysis of ofir ir inflation lation and the income tax According to the study the progressive structure of state stale and Federal income tax laws results in tax bills that rise much faster than the rate rale of inflation During periods of particularly par par- high inflation such as we have experienced over the past five years the impact of these higher taxes can bevery bevery be bevery very significant in reducing the standard standard stan stan- standard dard of living for families and individuals individuals individuals in in- as well as adversely affecting economic growth TIm TILE FOUNDATION cites the example of a family with a per year income in 1977 that had its income tied to the Consumers Consumer's Price Index If the rate of inflation for the next five years matched that of or the last five years the income of this family in 1982 would be a percent Increase increase in In- crease The direct taxes Federal income income income in in- come tax state income tax and the Social Security tax paid by this family however would automatically climb by 95 percent under the present tax laws Thus with taxes climbing faster than income the net home take pay after taxes of this family would rise by only 34 percent which is well below the five five- year inflation rate of nearly 45 percent In other words the effective buying power or standard of living for this family would be reduced by 76 percent even though gross family income kept pace with inflation Foundation analysts indicate that this decrease in purchasing power represents an ir inflation lation tax lax paid during periods of rising prices They attribute this to lo the following 1 Standard deductions and exemptions exemptions exemptions are fixed in amount thus resulting in more income being subject to lo taxation when income levels rise 2 The range of tax lax rate rale brackets also are fixed Increases in income resulting from inflation therefore are pushed into inlo higher tax lax brackets and are taxed at the highest rate rale to lo which the taxpayer taxpayer tax tax- payer is subject 3 Inflation increases the monetary value of property properly even if it il does not raise its real value If property is sold capital gains taxes are applied to this increase in money value 4 Inflation also increases the dollar value of merchandise and inventories held in stock This creates fictitious inflation earnings or phantom profits subject to taxation when the goods are sold 5 Depreciation Depre allowances in the tax laws are based on historical costs rather ratter than actual replacement costs This makes it difficult for businesses to accumulate sufficient reserves to replace plant machinery and equipment equipment equipment equip equip- ment as it wears out or becomes obsolete ob ob- solete The Foundation study points out that thai the first two Iwo factors listed above affect all taxpayers the Ite third one applies mainly to lo those who report capital gains transactions transaction while the last two are of primary interest to those with business income or investments in business concerns concern Indirectly however everyone is affected by these five factors because our economy requires a continued flow o of new capital investments investment in order to provide employment opportunities for fora a growing labor later force |
