BY: DANIEL SHAVIRO
New York University, School of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=162569
Date: February 1999
Contact: DANIEL SHAVIRO
Email: Mailto:shavirod at turing.law.nyu.edu
Postal: New York University, School of Law
#314-B
40 Washington Sq. South
New York, NY 10012-1099 USA
Phone: (212)998-6187
Fax: (212)995-4341
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