Does inflation increase taxes paid?

Answer 1

Yes. If the tax rate is 10% (for example) and something cost $1.00, then the tax collected is 10¢. If the cost of the item goes up to $1.10, then the tax collected is 11¢.

However, this assumes that income is also increasing. If income does not increase, spending will not increase, and thus the tax collected will remain flat. Again, if normally someone spends $20 on food in the store per day and eats out one night a week for $40, then that is $640 for four weeks (4x6x$20 + 4x$40). The tax collected (at 10%) would be $64.

However, if inflation pushes the store prices up to $22 per day and the restaurant to $44, the person could decide to purchase more food in the store and eat out only once every four weeks. Thus for four weeks the store bill would be $594 (27 x $22) plus $44 at the restaurant for a total of $638. The tax on this would be $63.80 or a loss of 20¢.

Answer 2

Depends upon the tax. Sales taxes are seldom if ever indexed to inflation so as prices rise so will tax revenues, at least to a point. If prices rise too much in relation to wages, people tend to cut back on spending and that can actually cause a reduction in tax revenues.

Income taxes are frequently indexed to inflation so although the tax revenues collected as wages rise the tax brackets, exemptions, and standard deductions generally rise as well. This at least partially offsets the effects of inflation on income taxes. Again, this is only to a point. If employers costs rise too much due to the effects of inflation to the point that workers are laid off it's possible that income tax revenues may drop as people leave the workforce at least temporarily.

The effects of inflation on real estate taxes can be harder to gauge. If inflation in general is low and only the real estate market is seeing price increases it's not unusual to see property tax rates fall since they are ultimately pegged to a local budget. In this instance most homeowners will see only modest changes in their property tax bills. (My property taxes actually dropped by 10% this year. The valuation of my home went up a fair amount but there was a cut in the rate that resulted in lower taxes at least for me.)

Answer 3

Of couse it does, if you paid $100 for some thing previously and a 5% tax, you paid $5 tax. If the price is now $150 at 5% tax, you pay $7.50 tax. It's called simple math, try it sometime!

Answer 4

It's been 2 week since the amnesty bill failed 200 million USA have spoken why are we still talking like it's still an issue. Please the legals that are here will be happy to do the jobs of the illegals with more pay an less dependence on our social services. Citizens will get there construction jobs back an all the jobs lost to lower wages. The employers have a choice hire illegals an get fine then louse your license.or hire legals an life goes on. That a easy call.

Answer 5

only to the extent that the price you pay for something and if taxes are a percentage of the price, then you pay more tax.