The Congress-does-nothing deficit reduction plan: how 'bracket creep'.

• Author: Kamin, David
• Position: The good kind - TEN MILES SQUARE

Round after round of budget negotiations have made one thing clear: Republicans and Democrats have a very hard time agreeing on much of anything, especially tax increases. With lots of luck, they may manage to eke out an agreement that would be enough to stabilize the debt for the time being-requiring new (if relatively modest) tax increases and spending cuts--but the long-term fiscal dilemma continues to loom.

With the Baby Boomers retiring and health care costs rising, it's inevitable that government spending will grow considerably as a share of the economy. That is, unless the country abandons its commitments to retirees, or radically shrinks the rest of the federal government--neither of which is likely or desirable. So that leaves us in a pickle: if we want to avoid gaping deficits in the long run, then--drum roll, please--our only option is significantly higher taxes.

But it turns out that the pickle might not be as bad as almost everyone in Washington thinks.

Because of some long-standing elements of our system as well as clever provisions in the Affordable Care Act, taxes will actually go up as a share of Americans' incomes in the decades ahead--without Congress so much as lifting a finger. And that could be a huge deal. Over the long term, the effect of these measures would be much, much larger than the recent tax increases on highest-income Americans that everyone's been hearing so much about.

Behind much of this unheralded inflow of future tax revenues is a phenomenon known as "bracket creep." But this isn't your father's kind of bracket creep. Bracket creep occurs, over time, as people are pushed into higher tax brackets by inflation or higher incomes or both. It got a bad name in the 1970s and early '80s, when Americans were incensed at finding themselves paying higher taxes due to the effects of sky-high inflation. That anger helped propel Ronald Reagan into the White House. Washington responded by cutting taxes and indexing much of the income tax code to inflation.

Those actions slowed down the kind of bracket creep that comes solely from lamentably high inflation, but it did not eliminate the other kind, which comes as a result of the laudable process of people's incomes rising faster than inflation. In our progressive tax system, which taxes higher levels of income at higher rates (and now indexes the brackets to inflation), people pay more as a share of their income when their earnings grow in real terms. While that...