ON-Lion Letter
Virtually all American households are confronted with high to very high marginal tax rates when they increase the number of hours they work in the current year or in future years.  Much of the system's highest effective marginal taxation comes courtesy of government transfer programs, particularly Medicaid.  In fact, penalties for working are astronomical for some households, especially lower-income families, according to a new National Center for Policy Analysis (NCPA) policy report by Laurence J. Kotlikoff and David S. Rapson.

Kotlikoff is a senior fellow of the Dallas-based NCPA, which is substantially supported by The Lynde and Harry Bradley Foundation in Milwaukee.  He is also a professor of economics at Boston University and a research associate of the National Bureau of Economic Research in Cambridge, Mass., projects of which Bradley has also supported.  Rapson is a doctoral student at Boston University. 

According to their "Does it Pay to Work More?," the fiscal tax system is regressive.  For 30-year-old couples earning $20,000 a year, for example, the marginal tax rate on an additional dollar earned is 42.5%, yet those earning $50,000 a year face a marginal tax rate of only 24.4%.

Moreover, Kotlikoff and Rapson find, single-parent households who qualify for more benefit programs than do couples face astonishingly high marginal tax rates beginning at lower incomes.  At age 30, for another example, a single parent earning $10,000 a year faces a 72.3% marginal tax rate on an additional dollar earned due to their loss of welfare benefits -- substantially higher than the 36.9% tax rate on the single parent earning $200,000.
Actions: E-mail | Permalink |