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Take-Home Pay Won't Increase from Inflation Adjustment in 2010

Based on Bureau of Labor Statistics Data, Report Predicts Tax Parameters for Tax Year 2010

Washington, DC - September 16, 2009 - Workers expecting an increase in take-home pay this January due to the annual automatic inflation adjustments can think again, according to a Tax Foundation analysis of Bureau of Labor Statistics (BLS) data released today.

The agency announced that the Consumer Price Index year-over-year monthly average increased by only 0.19 percent, the smallest inflation adjustment since the IRS began adjusting the tax code for inflation. This comes just a year after the biggest increase in nearly two decades.

"The past two years mark two extremes, one high and one low, ever since inflation adjustments became part of the individual income tax in the mid-1980s," said Tax Foundation Senior Economist Gerald Prante, who authored Tax Foundation Fiscal Fact, No. 188, "Inflation Adjustment for Tax Brackets Almost Zero for Next Year," available online at "Last year, tax parameters like the standard deduction and tax brackets increased substantially in value, while this year they are increasing very little or not at all."

After BLS releases its annual August estimate of the Consumer Price Index (CPI), the IRS calculates how much tax brackets will shift in the following year, along with several other important tax provisions that are affected by inflation. Employers will use these newly adjusted tax brackets to estimate withholding in 2010. The IRS will not publish the official inflation adjustments until later this fall, but rarely have the IRS's calculations differed from the Tax Foundation's estimates, and there are never any significant differences, according to Prante.

The Fiscal Fact also presents projections for each of the major tax parameters for tax year 2010, including every taxable income bracket, personal exemption, standard deduction, and phase-in and phase-out ranges for the limitations on personal exemptions and itemized deductions.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.


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