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Bracket Creep

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Bracket Creep
A situation where Inflation pushes income into higher Tax brackets.
    
Bracket creep is the process by which Inflation takes wages and salaries into higher Tax brackets resulting in an increase in income taxes but no increase in real purchasing power. This is a problem during periods of High Inflation as income Tax codes typically take a longer time to change.
    
Many 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.
    
Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
Posted by  Terrapinn Financial Training Pte Ltd
 
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