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Tipsheet

Obama Forgot About "Bracket Creep"

Writing in today's Wall Street Journal, Andrew Biggs points out a major flaw in Barack Obama's plan to return to the tax rates of the 1990s (pre Bush tax cuts):
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"Tax revenues would skyrocket if the tax cuts expire, due to "bracket creep." Average incomes are higher today than in the 1990s, but income-tax brackets aren't adjusted for the growth of earnings. As a result, Americans will shift into higher tax brackets and pay a greater share of their incomes in taxes.

Going back to the tax rates of the 1990s doesn't mean that households will pay 1990s taxes. Because the tax brackets haven't risen along with incomes, average taxes would be significantly higher, and grow each year.

... So even if the tax cuts are made permanent, future Americans will pay a greater share of their incomes to the government than in the past. But for some in Washington, that's not enough."

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