Meaning & use
fiscal drag
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Meaning
noununcountablefinance
The effect by which people pay more tax as their pay rises, because tax thresholds stay the same instead of rising with income or prices.
Grammar: Used without an article: fiscal drag increases tax bills.
Patterns
- fiscal drag on something
Freezing the tax thresholds created fiscal drag for millions of workers.
Economists warned that fiscal drag would slow consumer spending.
Fiscal drag pushed many teachers into a higher tax band.
Common combinations
- cause fiscal drag
- Frozen allowances can cause fiscal drag.
- stealth tax through fiscal drag
- Critics called it a stealth tax through fiscal drag.
- the effect of fiscal drag
- The effect of fiscal drag is hard for workers to see.
- suffer from fiscal drag
- Households suffer from fiscal drag during inflation.
Synonyms and how they differ
- bracket creep
- This is a close term, mostly American, stressing people moving into higher tax brackets.
- stealth tax
- This is a political label for any hidden tax rise, while fiscal drag names one specific mechanism.
Word family
Commonly confused: fiscal drag or monetary?
fiscal drag vs monetary
Monetary relates to money supply and interest rates, while fiscal relates to taxes and public spending.
Practice
Wages rise with inflation, but tax thresholds stay frozen, so workers pay more tax. What is this effect called?
Choose one answer.
Fiscal drag means higher tax paid because thresholds stay fixed. A surplus, refund or cut are different things.
Make it your own
Write a sentence using “fiscal drag”, then check it and compare it with the examples above.