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

October 10, 2007

The Tax 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 inflation 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.

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