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Old 12-06-2012, 10:03 AM
 
33,046 posts, read 22,072,092 times
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...As we also demonstrate, marginal net tax rates on current and life-cycle labor supply are astronomical over much smaller increments in gross earnings at particular levels of earnings at which income and asset eligibility tests of particular tax and transfer programs become relevant.


At low incomes (when transfer benefits are often linked directly to income) our
estimates of marginal effective rates are 80 to 100 percentage points higher than the CBO
in some cases. For example, 60 year old couples earning $10,000/yr are within the EITC
phase-in region, which results in a CBO estimated marginal rate of -40%. However, at
this income they also face a one-for-one reduction in food stamps. After accounting for
all of the relevant transfer programs, the resulting effective marginal rate is 50%, or 90
percentage points higher than the CBO estimate.

http://www.bu.edu/econ/files/2011/01..._Kotlikoff.pdf
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