Federal income taxes are levied on the basis of nominally stated tax brackets, and there is a nominal upward adjustment in salaries and wages during inflation. Therefore, what is true of federal tax collections during inflation? They will

Question

Quizplus · Accepted Answer

During inflation, nominal salaries and wages increase. As a result, taxpayers may find themselves in a higher tax bracket, leading to an increase in their tax liability in nominal terms. Therefore, federal tax collections will increase in nominal terms. However, in real terms, the tax collections may not increase or may even decrease, as inflation reduces the purchasing power of the tax revenue. Therefore, Option D is the correct answer.

Federal Income Taxes Are Levied on the Basis of Nominally