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MENTAL MODEL · M3392

Bracket Creep

Bracket Creep
BusinessHigh supportEconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

Bracket creep is usually defined as the process by which inflation pushes wages and salaries into higher tax brackets, leading to fiscal drag. However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate rises, effectively increasing the tax burden without any legislative change.

SCAFFOLDING EFFECT

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Bracket creep is usually defined as the process by which inflation pushes wages and salaries into higher tax brackets, leading to fiscal drag. However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate rises, effectively increasing the tax burden without any legislative change.

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Under a progressive tax system, tax brackets are defined in nominal income terms; inflation raises nominal income without increasing real purchasing power, pushing taxpayers into higher brackets with higher marginal tax rates, thereby increasing the real tax burden—a 'hidden tax increase'.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Bracket_creepZH · Explicit
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