Thursday, November 15, 2012

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[IWS] CBO: EFFECTIVE MARGINAL TAX RATES FOR LOW- AND MODERATE-INCOME WORKERS [15 November 2012]

IWS Documented News Service

_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

________________________________________________________________________

 

Congressional Budget Office (CBO)

 

EFFECTIVE MARGINAL TAX RATES FOR LOW- AND MODERATE-INCOME WORKERS [15 November 2012]

http://www.cbo.gov/publication/43709?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=0

or

http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-2012-MarginalTaxRates.pdf

[full-text, 53 pages]

 

[excerpt]

The effective marginal tax rate is the percentage of an additional dollar of earnings that is unavailable to a worker because it is paid in taxes or offset by reductions in benefits from government programs. In part, such rates are determined by income and payroll tax rates and other features of the tax system, such as tax credits and deductions that depend on earnings. However, effective marginal tax rates are also determined by programs providing cash and in-kind benefits, referred to as transfers, that target assistance to people of reduced means. Because increases in earnings for low- and moderate-income workers can cause relatively large reductions in such assistance, this analysis of effective marginal tax rates (hereafter referred to as marginal tax rates) focuses on those workers. Those rates affect people’s incentives to work: All else being equal, people tend to work fewer hours when marginal tax rates are high.

 

To examine the distribution of marginal tax rates across households, CBO simulated tax liabilities from income and payroll taxes and benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program) using a sample of tax returns from 2006 supplemented with information from household surveys. Benefits from SNAP were included in the analysis because it is a widely used program with cash-like benefits that can be calculated using information from household surveys; including additional programs would generally increase estimates of marginal tax rates.

 

 

Contents

CBO

Summary iv

Introduction 1

Tax Credits and Transfers 1

Effective Marginal Tax Rates and Labor Market Decisions 2

Policy Implications 3

CBO’s Analytical Approaches 3

Factors That Contribute to Marginal Tax Rates: A Hypothetical Example 3

Federal Individual Income Taxes and Tax Credits 4

Federal Payroll Taxes 8

State Individual Income Taxes 8

Means-Tested Transfer Programs 9

BOX: ESTIMATED PROGRAM PARTICIPATION RATES USING SURVEY DATA 12

An Illustration of Marginal Tax Rates: Combining Taxes and Transfers 14

Simulating the Distribution of Effective Marginal Tax Rates 14

BOX: INCOME AFTER TAXES AND TRANSFERS 15

BOX: EFFECTIVE MARGINAL TAX RATES ASSOCIATED WITH LABOR FORCE ENTRY IN 2012 16

Effective Marginal Tax Rates Under 2012 Law 19

Overall Distribution 19

Distribution by Earnings Group 21

Distribution by Family Type 22

Effective Marginal Tax Rates Under 2013 and 2014 Law 23

Example of Effective Marginal Tax Rates in 2013 23

Example of Effective Marginal Tax Rates in 2014 27

Overall Distribution 27

Appendix A: Tax Provisions and Benefit Programs Affecting Effective Marginal Tax Rates 33

Appendix B: Distribution of Marginal Tax Rates by Earnings 39

List of Tables and Figures 43

About This Document 45

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

 




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