Bracket Creep


DEFINITION of 'Bracket Creep'

A situation where inflation pushes income into higher tax brackets. The result is an increase in income taxes but no increase in real purchasing power.

BREAKING DOWN 'Bracket Creep'

This is a problem during periods of high inflation as income tax codes typically take a longer time to change.

  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Tax Indexing

    The adjustment of the various rates of taxation done in response ...
  4. Economic Recovery Tax Act Of 1981 ...

    A law that lowered income tax rates and allowed for expensing ...
  5. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that ...
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  1. What does deflation mean to investors?

    Before we delve right into the topic of deflation, it should be noted that the causes and effects of deflation are complex ... Read Full Answer >>
  2. What is inflation and how should it affect my investing?

    Inflation, an economic concept, is an economy-wide sustained trend of increasing prices from one year to the next. The rate ... Read Full Answer >>
  3. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  4. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>
  5. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options ... Read Full Answer >>
  6. Are IRS audits random?

    While the U.S. Internal Revenue Service (IRS) conducts some of its tax audits using random selection based on a statistical ... Read Full Answer >>

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