bracket creep


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Bracket creep

The gradual movement into higher tax brackets when incomes increase as a result of inflation.

Bracket Creep

A situation in which inflation pushes people into higher tax brackets, resulting in a higher tax liability, even though the purchasing power of their income has not increased. When inflation is high, the dollar amounts of people's incomes goes up, but because prices for products also go up this does not correlate to an increase in purchasing power. However, because tax brackets are listed by dollar amounts, it may mean that the government is entitled to a greater share of one's disposable income. To avoid bracket creep, a legislature may link a tax bracket to inflation or change tax brackets every few years.

bracket creep

The movement of a taxpayer into higher tax brackets as his or her taxable income increases over time. Bracket creep occurs because of the progressive nature of the federal income tax structure, that is, extra income is taxed at higher and higher rates. As a result of bracket creep, more and more individuals seek tax-advantaged investments. Bracket creep was reduced significantly by 1986 tax reform, which reduced the number of tax brackets. Several additional brackets were added in the early 1990s.
References in periodicals archive ?
Putting this extra revenue from Obamacare together with other additional revenue derived from a combination of overall bracket creep and this January's tax increase, and the picture becomes clear: even as spending rises as a share of the economy, so will revenue.
At the time, middle class Americans through bracket creep faced the tax rates reserved for the super rich, a suffocating situation Reagan's fiscal policy corrected but is virtually a non-event in the Greenspan text, as is largely Reagan himself.
Occasional relief, such as by adjusting tax brackets for the purposes of income tax rates, have only partly offset the effects of bracket creep and have been apparently adopted for electoral purposes, and not pursuant to any responsible policy of restricting government growth.
Bracket creep in the individual income tax was another method of easy financing.
Graetz's book delivers a practical and politically realistic exposition, covering issues from the marriage penalty and tax shelters to bracket creep and capital gains.
Second, bracket creep in the individual income tax increased revenues and in time led to tax cuts.