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Bracket creep would be eliminates when tax rates are based on....?

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Bracket creep would be eliminates when tax rates are based on....?

Postby fyfe » Tue Apr 17, 2012 8:34 am

a)nominal income
b)real income
c)per capita income
d)nominal disposable income
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Bracket creep would be eliminates when tax rates are based on....?

Postby twein » Tue Apr 17, 2012 8:36 am

Fiscal drag happens when the government's net fiscal position (spending minus taxation) fails to cover the net savings desires of the private economy, also called the private economy's spending gap (earnings minus spending and private investment). The resulting lack of aggregate demand leads to deflationary pressure, or drag, on the economy, essentially due to lack of state spending or to excess taxation.

One cause of fiscal drag may be bracket creep, where progressive taxation increases automatically as taxpayers move into higher tax brackets due to inflation. This tends to moderate inflation, and can be characterized as an automatic stabilizer to the economy. Fiscal drag can also be a result of a hawkish stance towards government finances.
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