If the income tax system were indexed, a person whose nominal income went up from $30,000 to $33,000 in a year when the price index rose by 10 percent would pay

Question

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If the income tax system were indexed to the price index, the tax bracket for a person earning $30,000 would be adjusted for inflation to reflect the increased cost of living. Therefore, if the price index rose by 10%, the threshold for each tax bracket would also increase by the same amount. So, a person whose nominal income went up from $30,000 to $33,000 would still fall within the same tax bracket and pay the same amount of real income taxes. Thus, there would be no increase in real income taxes.

If the Income Tax System Were Indexed, a Person Whose