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Millions of Americans could be in store for higher taxes as a result of the hottest inflation in close to 40 years.
That's because of a phenomenon known as "bracket creep," which happens when taxpayers are pushed into higher-income brackets even though their purchasing power is essentially unchanged due to steeper prices for most goods.
Although the IRS adjusts federal income taxes for inflation, a recent analysis published by the Tax Foundation shows that 15 states fail to account for inflation when drawing the brackets for taxes on wages and income. An additional 18 states do not index personal exemption tax to inflation.
Altogether, 22 states have at least "one major unindexed provision," which could mean higher taxes for millions of taxpayers who are already confronting the steepest inflation in decades. The government reported last week that the consumer price index, which measures a basket of everyday goods including gas, cars and food, unexpectedly rose 0.1% in August from the previous month and 8.3% year-over-year, close to the highest level since 1981.
INFLATION ROSE FASTER THAN EXPECTED IN AUGUST, KEEPING PRICES PAINFULLY HIGH