Bracket Creep

Bracket creep is that unfortunate scenario where the salary is increasing enough to bump a person into the next tax bracket...but inflation is also creeping up. So between that extra tax and extra cost to buy goods, the person somehow has less buying power.

Example. Let's say you make $50,000 a year and are being taxed 8%. Eventually, you earn raises and work up to $55,000. This bumps you up to a new tax bracket, and now you pay 10%.

That alone might not be a huge issue (hey, it's only 2%), but if inflation is raising the price of the things you need to buy as you pay that extra 2%...you may very well end up being able to buy only the same amount, or even less than before, with your "raise." This happens when the tax brackets are not adjusted via the tax code.

Ideally, tax indexing keeps the tax brackets balanced with inflation. When this isn't done because the taxing agency needs extra money (like King Richard in Robin Hood), or maybe because they're just slow to adjust, people end up hainging in limbo with bracket creep.