Recently the Canadian Taxpayers Federation wrote to Finance Minister Paul Martin urging him to end "bracket creep" (the effect where tax bracket thresholds lag behind the cost of living) in his forthcoming budget.

There is an overwhelming national consensus in support of this move from left and right, from think tanks to organized labour to taxpayer groups; all agree that the tax system should be fully re-indexed for inflation.

However, some of the politicians are resisting. Big surprise. Behind closed doors, provincial finance ministers urge Paul Martin not to raise tax bracket thresholds too quickly. They don't want the income tax system re-indexed for inflation, because then they would actually have to vote for an income tax increase if they want more taxes instead of just letting inflation push taxpayers into higher tax brackets.

And it's hard to tell where Mr. Martin stands on the issue: Why do away with an automatic tax increase that resulted in extra revenues equal to about half of what the GST takes in

Because Mssrs. Martin (and Mr. Ramsey, who has said nothing on this issue thus far,) taxpayers are beginning to catch on to this scam.

For those that haven't caught on yet, here's how it works: You get a raise to keep pace with inflation, tax brackets are not moved for inflation, and voila - part of your income is now in a higher tax bracket, but the price of goods and services continues to rise which means you have less money. Bottom line: you're making more, but buying less.

So what would the consequences be if the tax system was re-indexed for inflation Actually, a real win-win-win scenario actually, even for politicians.

Fiscal Consequences: If annual inflation remains constant at 1.5%, the impact (loss of revenue) to the treasury would be $900 million. In year two, $1.8 billion, year three, $2.7 billion, etc. This is trivial when you consider that the government plans to record surpluses of $5.5 billion, $8.5 billion and $12.5 billion over the same three-year period. This is easily affordable.

In addition, the government already plans to index future program spending to inflation. It is only fiscally fair that taxpayers are not hit with the double whammy of more spending and declining real incomes.

Social Consequences: It's great social policy. Millions of low and middle-income Canadians have seen the real value of credits such as the refundable GST credit, the age credit, or the child tax benefit erode due to bracket creep. Over 3.5 million Canadians have been pushed onto the tax rolls or into higher tax brackets due to bracket creep. Ensuring that low-income Canadians are allowed to keep as much of their income as possible is fundamental to keeping the pressure on welfare assistance and entitlement schemes to a minimum. (Read: lower costs for all taxpayers.)

Political Consequences: Apart from the no-brainer fiscal and social reasons for ending bracket creep, the political benefits for the federal Finance Minister are equally compelling.

Ending bracket creep moves the fiscal policy debate from tax cuts to fundamental tax reform. It would be a legacy initiative credited to Mr. Martin.

Besides, this year marks 14 years of "bracket creep." Seven years were courtesy of the Tories, but the last seven years are courtesy of the Liberals. From here on in, that means Paul Martin's record on bracket creep will be even more abysmal than that of the Tories, unless of course he does the proper thing come budget day.