Bracket Creep: A Thief in the Night

Bracket Creep: A Thief in the Night

’s back, and prices for just about everything are roaring ahead at a pace Americans haven’t witnessed in four decades.

But inflation does more than just raise prices. It also raises wages in order to help workers keep pace with those rising prices. It’s a vicious circle that those of us of a certain age remember all too well.

We also remember how the wage and price spiral lead to a genuinely evil thing called “bracket creep.” 

In simple terms, meant that as your wages rose, so did your income. This pushed you into a higher income tax bracket. That’s because the tax rates weren’t indexed for inflation. They were static, meaning government got more revenue and never had to lift a finger – or take a vote – to make it happen.

The 1986 tax reform bill indexed federal income taxes rates, and many states did the same.

But not all of them. Thirteen states don’t index taxes to inflation, which means inflation is fattening their bottom lines without lawmakers having to do a thing.

And in a few states, the tax brackets have been unchanged for so long, they effectively balance state budgets on the backs of the poor:

In Alabama, the top bracket is $3,000 — a figure introduced in 1935 during the depths of the Great Depression when $3,000 was equivalent to $62,000. There are six states where the top tax bracket kicks in below $10,000 and hasn’t been updated in decades…

What that also means is there’s a lot of hypocrisy going on in state-level politics. Lawmakers who proudly say they are against tax hikes of any sort, but are in states that don’t index income tax brackets for inflation, are allowing tax hikes to occur every year.

Inflation is doing all the work for them. That’s got to stop. And it will stop – if lawmakers really want it to…and the people demand it.

If it helps, think of all this as a crime issue.

As legendary Federal Reserve chairman William McChesney Martin said in 1955 (when inflation was a fraction of what it is today):

Inflation is a thief in the night and if we don’t act promptly and decisively we will always be behind.

Inflation is a thief alright, stealing wealth and eroding savings by night, and in broad daylight. One way to put a dent in this crime spree? Index state income tax brackets to inflation. It will save taxpayers money, and it will force politicians who want more money to get it the right and accountable way: by voting for it.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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