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:

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Kim has experienced the inflationary cost of tax distortion. Even though her salary increased by 10 percent, she ended up with only a 5 percent increase due to the higher tax rate she now falls under. This is an example of how inflation can push people into higher tax brackets and decrease their purchasing power.

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