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Wednesday, October 30, 2013

NY Times: The Marginal Tax Rate Mess

New York Times:  The Marginal Tax Rate Mess, by Nancy Folbre (UMass):

After years of partisan debate over marginal tax rates on the rich, it seems we are now destined for even more acrimony over implicit marginal tax rates on the poor. When families receiving such means-tested benefits as food stamps or housing subsidies earn more income, their benefits are reduced. That’s what means-testing means.

The reduction in benefits is accurately described as an implicit tax. The only way to avoid such an implicit tax is either to provide universal benefits or no benefits at all. On a fundamental level, means-tested programs represent an uncomfortable compromise between those who want governments to help their citizens, those who don’t, and all those in between. ...

As a result of losing eligibility for means-tested benefits, low-income and middle-income families sometimes experience much higher marginal effective tax rates (sometimes exceeding 90 percent) than those at the top of the income distribution. Phase-outs for any one program may not be large, but participation in several programs creates a cumulative effect.

http://taxprof.typepad.com/taxprof_blog/2013/10/ny-times--3.html

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