Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent.This year you earned $25,000,the extra $5,000 just compensating you for inflation.However,this year you paid taxes in the third bracket at 20 percent.This illustrates the concept of
A)Stagflation.
B)Speculation.
C)Deflation.
D)Bracket creep.

Question

Quizplus · Accepted Answer

Bracket creep refers to the phenomenon where inflation causes an increase in income without any real increase in purchasing power, which pushes an individual into a higher tax bracket. In this scenario, the individual's income increased by $5,000, but this increase only compensated for inflation. As a result, the individual's tax bracket shifted from the second bracket to the third bracket, resulting in a higher tax rate. This phenomenon is known as bracket creep.

Last Year You Earned $20,000 and Paid Taxes in the Second