Skip to content

Tax Brackets for 2008 Will Not See Large Inflation Adjustment Like Last Year

1 min readBy: Gerald Prante

The TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation has released a Fiscal Fact showing the projected parameters of important tax variables for Tax Year 2008, using the most recent release of the Consumer Price Index. The IRS will base its inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. adjustments for Tax Year 2008 on the price inflation of the CPI-U variable from September 2006 – August 2007. So the tax return you file in April 2009 will actually depend upon the price index from September 2006.

The story for this year is that inflation as measured via the IRS method was much lower from Sept. 2006 – Aug. 2007 (2.29 percent) than from Sept. 2005 – Aug. 2006 (3.90 percent).

And for something that would appear to be simple, adjusting each tax parameter for inflation is actually a very technical and detailed process where the adjustment depends upon the CPI level of the base year in which the bracket was created (such as the 10% bracket in 2002). But I guess this should be no surprise to most Americans who view the tax system as already way too complex.