In the late 1970s and early 1980s, one of the ways inflation reared its ugly head was through what’s known as bracket creep. Since the income cutoffs for different tax rates weren’t periodically adjusted for inflation, millions of Americans paid higher rates while their real incomes stayed the same.
Tax cuts initiated by President Ronald Reagan took care of that; since 1985, the Internal Revenue Service has taken inflation into account annually when it announces the income thresholds for the coming tax year. Yet while dozens of tax provisions are now adjusted for inflation every year, there are still plenty of significant ones that don't get the same treatment.
Take two popular tax breaks, the child tax credit and the credit that taxpayers get to help with child care expenses. Both are flat amounts that don't take inflation into account. Similarly, the amount someone can write off for an investment loss has been stuck at $3,000 per year since 1978. And the deduction for business gifts has been set at $25 since 1962.
