Bracket creep occurs when inflation pushes a taxpayer into a higher tax bracket even though their real income has not increased. This can be avoided by adjusting tax brackets for inflation. If the same tax rate were applied to all income, there would be no bracket creep. It is not necessarily greater in 2001 than in 1971, and it does not invariably lead to an excess burden.

Solved

Bracket Creep

Question 57

Multiple Choice

Bracket creep

A) results in a tax on money balances.
B) would be zero if the same tax rate were applied to all income.
C) is greater in 2001 than it was in 1971.
D) invariably leads to an excess burden.

Correct Answer: