Kim is paid $50,000 per year,and pays an annual income tax of 10 percent.Due to an inflation rate of 10 percent,her pay increases to $55,000,which puts her in a higher tax bracket where she must pay 20 percent.Kim has experienced:

Question

Quizplus · Accepted Answer

Kim has experienced bracket creep, which is when inflation pushes a taxpayer into a higher tax bracket. As a result, she now must pay a higher tax rate, which represents the inflationary cost of tax distortion. This ultimately decreases her purchasing power as additional income is taxed at a higher rate, reducing the after-tax income of taxpayers. Therefore, all the given statements are true.

Kim Is Paid $50,000 Per Year,and Pays an Annual Income