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Show Inflation tax' bite promp, support for tax indexing for ft to the public. In addition to its direct effect on the marketplace, inflation takes an ad iona bite out of most wage earners mcome through its interaction with the points out in a Research Brief released this week. Because such things as personal exemptions, allowable deductions and Se marginal income brackets to which progressive tax rates are apphedare kll stated in fixed-dollar amounts their value changes with inflation without the change being visible on the surf ace. When wages are adjusted for .nflation, the wage earner is moved into a higher tax bracket, while his fixed-dollar deductions and exemptions lose real value. As a result, income tax liability not only rises, but rises faster than was comtemplated when the tax structure was approved. "It is normal and acceptable under a graduated income tax system that tax liability should increase as income increases, and even for the tax liability to rise faster than income rises because of the graduated nature of the tax structure," the Foundation notes. "However, when inflation causes tax liability to rise at a faster rate than is comtemplated in the tax structure, two things happen: 1) the individual has less after-tax income in terms of real dollars than he had before, even though his gross income has increased at the same rate as inflation; and 2) the government collects more money, in real dollars as well as in nominal dollars, than was intended when the tax structure was approved. are not truly accountable for money, which often is used to on-going programs. If iawnJ; adjust the tax structure to w burden of the inflation tax, tW" credit for enacting a 'tax 3 that is no reduction at all." : The Foundation presents r-based r-based on current U.S. and Utah tax laws, to show that typical fa" four, taking standard deiW would pay the following ani ' "inflation tax" after five yeaJ5 percent annual inflation: ' On a base income of $10,000 $1,054 in added inflation tax in J year. On a base gross income of $35 r. additional $3,067 in the fif Amounts include both federal am' state income taxes. Proposals for "indexing" features as personal exenJ allowable deductions, and the ; marginal tax brackets appear gaining support. Such indexing , retain the real value of the exem-,' deductions, and tax graduation automatically adjusting them tl " advance of inflation. Under sue;' dexing, tax liability would inc income increased, but after-tax J in terms of constant dollars woy change if income advanced at tfej rate of inflation. According to the Advisory! mission on Intergoverrm. Relations, "indexation simply the government to play fair payers.. .It shines the spotlight,; countability on elected official; forces them to publicly confrc taxing and spending issued of the i a manner for which they can clea held responsible by the voters." The Foundation notes th? growing number of U.S. citizens;; to be reaching the same conclul |