Inflation Adjustments Affecting Individual Taxpayers in 2001: Analysis and Commentary
Posted: 22 Sep 2000
Without inflation adjustments to key portions of the tax system, individuals would be faced with an erosion of their purchasing power. Beginning in 1985, Congress implemented an indexation procedure to adjust various income tax components, including the tax rate schedules, standard deduction, and personal and dependency exemptions. Although suspended by the Tax Reform Act of 1986, indexation resumed in 1989 and now applies to many items in the tax system.
In this article, Young discusses 2001 inflation adjustments to specific portions of the individual tax system which are tied to a "consumer price index year" ending in August. Items adjusted by this indexation procedure include the tax rate schedules, standard deductions, exemptions (and related phase-out), the overall limit on itemized deductions, and certain computational elements related to unearned income of minor children, the earned income credit, educational savings bonds, qualified transportation fringe benefits, medical savings accounts, and long-term care insurance premiums.
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