Effective Marginal Tax Rates on Low-Income Households
New York University School of Law
Discussion of marginal tax rates (MTRs) on low-income households often ignores the significance of income-conditioned benefits such as TANF, Food Stamps, Medicaid, and housing vouchers, and fails to account properly for the payroll tax or the possible accrual of expected Social Security benefits. This paper discusses the equivalence between a benefit phaseout and an explicit MTR and provides rough ballpark estimates of the MTRs that a one-parent, two-child household might face as its earnings increased from 0 to $25,000. It finds that these MTRs are generally quite high, especially at the range from just below to just past the official poverty line, by reason of the application of multiple phaseouts. In a worst-case scenario, such a household might even be better-off with earnings of $10,000 than of $25,000.
Number of Pages in PDF File: 43
JEL Classification: H2
Date posted: May 19, 1999