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Marginal Tax Rates Facing Low– and Moderate–Income Workers Who Participate in Means–Tested Transfer Programs

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  • Holt, Stephen D.
  • Romich, Jennifer L.

Abstract

The combination of a progressive tax system with credits for low–income workers and means–tested transfer programs can create high marginal tax rates (MTRs) on earned income. We document the extent and distribution of statutory and actual MTRs for Wisconsin households with earned income in 2000 using a unique data set of merged tax, transfer program, and wage data. Nearly a quarter of unmarried tax filers with two or more dependents face MTRs of 50 percent or greater. Households between 100 percent and 250 percent of the federal poverty threshold and those using multiple means–tested programs are more likely to face high rates.

Suggested Citation

  • Holt, Stephen D. & Romich, Jennifer L., 2007. "Marginal Tax Rates Facing Low– and Moderate–Income Workers Who Participate in Means–Tested Transfer Programs," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(2), pages 253-276, June.
    • Handle: RePEc:ntj:journl:v:60:y:2007:i:2:p:253-76
    DOI: 10.17310/ntj.2007.2.05
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    Cited by:

    1. Casey B. Mulligan, 2012. "The ARRA: Some Unpleasant Welfare Arithmetic," NBER Working Papers 18591, National Bureau of Economic Research, Inc.
    2. Ravallion, Martin & Chen, Shaohua, 2015. "Benefit incidence with incentive effects, measurement errors and latent heterogeneity: A case study for China," Journal of Public Economics, Elsevier, vol. 128(C), pages 124-132.
    3. Johannes Fleck & Chima Simpson-Bell, 2019. "Public Insurance in Heterogeneous Fiscal Federations: Evidence from American Households," 2019 Meeting Papers 296, Society for Economic Dynamics.
    4. Casey B. Mulligan, 2012. "Do Welfare Policies Matter for Labor Market Aggregates? Quantifying Safety Net Work Incentives since 2007," NBER Working Papers 18088, National Bureau of Economic Research, Inc.
    5. Paul D. Trampe, 2011. "The Effects of Combined Marginal Tax Rates on the Working Poor: Evidence from the Current Population Survey and the Survey of Income and Program Participation," Poverty & Public Policy, John Wiley & Sons, vol. 3(4), pages 1-31, December.
    6. Maag, Elaine & Steuerle, C. Eugene & Chakravarti, Ritadhi & Quakenbush, Caleb, 2012. "How Marginal Tax Rates Affect Families at Various Levels of Poverty," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 759-782, December.
    7. Randy Albelda & Michael Carr, 2017. "One Step Forward, One Step Back? Labor Supply Effects of Minimum Wage Increases on Single Parents with Public Child Care Support," Working Papers 2017_01, University of Massachusetts Boston, Economics Department.

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