bracket creep
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Bracket creep
The gradual movement into higher tax brackets when incomes increase as a result of inflation.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.