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 ?
But that law, too, provides opportunities for bracket creep.
studying time trends, however, we adjust for bracket creep to avoid
These relationships are complex, and until we have detailed tabulations compiled from actual tax returns, we shall not really know why individual tax revenues, relative to income, have been even higher than would have been predicted from rising asset values and bracket creep.
Such inflation-induced bracket creep was eliminated in 1981, when income-tax brackets were indexed for inflation.
This good news has a downside when the income-tax effect is considered by the ultimate beneficiary(s): the final distribution can result in bracket creep, which can work against the previous investment gains.
He also found in the course of his investigation a phenomenon he calls "unattributed-numbers bracket creep.
Bracket creep shoved lower- and middle-income taxpayers into middle- and upper-income brackets.