Final answer:
The statement is false because both tax brackets and standard deductions are adjusted for inflation, and though the Tax Cuts and Jobs Act of 2017 eliminated personal exemptions, they were once indexed as well. Indexation prevents taxpayers from moving into higher tax brackets due to inflation without an actual increase in real income.
Step-by-step explanation:
The statement, "According to indexation, some of the more important components that are adjusted include: tax brackets and standard deduction but they do not include personal and dependency exemptions," is false. Tax brackets and standard deductions are indeed some of the important elements adjusted for inflation under indexation rules.
In the U.S. income tax system, indexation is applied to various components to prevent 'bracket creep,' where inflation pushes taxpayers into higher tax brackets without a real increase in income. Prior to 1981, bracket creep was a genuine concern, but present-day tax laws have been adjusted to include indexation of tax brackets, standard deductions, and personal exemptions (though personal exemptions are no longer included since the Tax Cuts and Jobs Act of 2017).
Understanding these components of the tax code and their indexation is crucial for taxpayers and is reflected in the calculation of taxable income, which is adjusted gross income minus deductions and exemptions:
taxable income = adjusted gross income - (deductions and exemptions).