Credit Corrosion: Bracket Creep’s Evil Twin

“Bracket creep” – the decline in tax brackets due to lack of full indexation – has attracted attention recently, though it has been slowly hiking the taxes of some taxpayers since 1986; about one in five taxpayers has been pushed into a higher tax bracket. Even more widespread in its impact and little noticed is what Caledon has dubbed “credit corrosion”: the gradual erosion of the value of the basic personal credit (which reduces tax for all taxpayers) and most other credits and deductions which deliver tax breaks to large groups of the Canadian population. These include one-income couples, single-parent families, the elderly, people with income from private pensions, families paying for child care, persons with disabilities, and families saving or paying for their children”s postsecondary education. This report estimates the federal and provincial income tax increase resulting from partial deindexation of nonrefundable and refundable tax credits and deductions. But it is unlikely that restoration of full indexation is in the cards. “Given the choice between handing out visible tax cuts that invisibly decline over time thanks to partial deindexation, and full indexation”s invisible tax cuts that benefit taxpayers without their knowing, what government is going to take the path of righteousness?”

ISBN – 1-894159-82-9