Tax indexing

Tax indexing is the adjustment of income tax rates for ongoing changes in the inflation rate. Tax indexing is used to inflation-adjust the income levels to which tax rates are applied, so that taxpayers are not bumped up into higher tax brackets simply because they have experienced inflationary increases in their compensation. By using tax indexing, the purchasing power of taxpayers is preserved. This is a particularly useful tool in highly inflationary economies, where taxpayers might otherwise be bumped up into a much higher tax bracket. Typically, the government bureaucracy is allowed to use tax indexing every year, so that this task is not waiting on legislative approval (which may be delayed for a variety of reasons).