Journal Article

HOW MARGINAL TAX RATES AFFECT FAMILIES AT VARIOUS LEVELS OF POVERTY

Maag, Elaine, Steuerle, C. Eugene, Chakravarti, Ritadhi, Quakenbush, Caleb

2012

Overview

High marginal tax rates can make moving above poverty very difficult for low-income families. These high tax rates result from increasing direct taxes (both state and federal) as well as decreasing transfer payments (including both Supplemental Nutrition Assistance Program benefits and Temporary Assistance for Needy Families). Depending on which state a person lives, a single parent with two children can face an average marginal tax rate of over 100 percent or as low as 26.6 percent as they move from the poverty level of income to 150 percent of the poverty level. If her earnings are limited to only six months of the year, she may retain transfer benefits for the remaining six months, lowering her marginal rate over the same income range to between 66.0 percent and –17.7 percent for those additional earnings. Our analysis shows how sensitive marginal tax rates are to assumptions about earnings patterns and program participation.

• Publisher: National Tax Association,The University of Chicago Press,Assoc,University of Chicago Press
• Subject: Child care / Earned income tax credit / Earnings / Economic theory / Electronics benefit transfer / Familie / Families & family life / Federal taxes / Grenzsteuersatz / Income taxes / Laws, regulations and rules / Low income / Low income groups / Marginal analysis / Marginal tax rate / Medicaid / Net income / Nutrition / Nutrition programs / Parent-child relations / Payment systems / Payments / Poverty / Single parents / Social aspects / Sozialleistungsempfänger / Steuerinzidenz / Studies / Tax benefits / Tax incidence / Tax rates / Taxation / Transfer payments / U.S.A / USA / Welfare policy / Welfare services