NCPA - National Center for Policy Analysis

Now It's Income Creep

October 5, 2000

A major cause of the tax revolt of the 1970s was that inflation was pushing Americans into ever-higher tax brackets -- even though their real incomes were stagnant. So Congress indexed part -- but not all -- of the income tax code to take account of inflation.

Now it is the booming U.S. economy that is pushing Americans into higher brackets. As prosperity raises real incomes, the government's share of the pie grows.

  • The federal government's take from personal income taxes is at record levels -- 9.6 percent of gross domestic product and growing.
  • The previous record was 9.4 percent in 1944 at the height of World War II.
  • After the war, the income tax take fell sharply -- to a low of 5.7 percent of GDP in 1949.
  • Twice previously in recent decades Washington's income tax take has turned sharply upward -- in 1969 due to the Vietnam War surtax and in 1981 because of bracket creep.

While Americans were visibly upset when inflation sent their taxes soaring, analysts have noted that today's taxpayers seem less concerned when it is prosperity propelling their taxes higher.

That may explain, to some degree, the lukewarm reception tax cut proposals are getting.

Source: Peter Brimelow, "Charticle: Income Creep," Forbes, October 16, 2000.


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