What are tax brackets used for?

Tax brackets are primarily used to categorize income by tax rates, which means they help to determine how much tax an individual owes based on their income level. The income tax system in many countries uses a progressive structure where different portions of an individual's income are taxed at different rates. This means that as a taxpayer earns more money, portions of their income are taxed at higher rates, but not all of their income is taxed at the highest rate.

This system allows for different tax rates to be applied in a way that is intended to be fair, ensuring that those who can afford to pay more do so, while those with lower incomes benefit from lower tax rates. By clearly defining these brackets, the government can generate revenue in a manner that is proportional to individuals' income levels.

The other options relate to different financial aspects; simplifying investment strategies affects portfolio decisions, determining loan interest rates involves creditworthiness and market factors, and tracking inflation rates concerns measuring the value of money over time. None of these options serve the same purpose as tax brackets in categorizing income to apply specific tax rates.