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Effective Marginal Tax Rates on Low-Income Households

43 Pages Posted: 19 May 1999  

Daniel Shaviro

New York University School of Law

Date Written: February 1999

Abstract

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.

JEL Classification: H2

Suggested Citation

Shaviro, Daniel, Effective Marginal Tax Rates on Low-Income Households (February 1999). Available at SSRN: https://ssrn.com/abstract=162569 or http://dx.doi.org/10.2139/ssrn.162569

Daniel Shaviro (Contact Author)

New York University School of Law ( email )

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New York, NY 10012-1099
United States
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