How Income Growth Affects Tax Revenues in CBO’s Long-Term Budget Projections
CBO projects that federal revenues will increase by 3 percent of GDP over the next 30 years. Real bracket creep—when people’s income rises faster than the tax brackets and other elements of the tax system—accounts for about half of that increase.
In CBO’s long-term projections, federal revenues increase by an amount equal to 3 percent of gross domestic product over the next 30 years. Real bracket creep in the individual income tax system accounts for about half of that increase. Most of the effect occurs because the tax brackets’ thresholds, the standard deduction, and the personal exemption grow more slowly than income. The rest of the effect occurs because other elements (including credits, thresholds for surtaxes, and other phaseouts) grow more slowly than income does and because of the way the effects interact with each other.