Working Paper: NBER ID: w22782
Authors: Gizem Kosar; Robert A. Moffitt
Abstract: We present new calculations of cumulative marginal tax rates (MTRs) facing low income families participating in multiple welfare programs over the period 1997-2007, the period after 1996 welfare reform but before the program expansions of the Great Recession. Our calculations are for nondisabled, nonelderly families who pay federal and state income taxes and the payroll tax but receive benefits from up to four different transfer programs—Medicaid, Food Stamps, subsidized housing, and Temporary Assistance for Needy Families. The results show enormous variation in MTRs across families who participate in different combinations of welfare programs, who have different family structures, and who have earnings in different ranges. For families who participate in either no or fewer than two welfare programs, which constitutes the large majority of low income families, MTRs are either negative or positive but modest in magnitude. But families participating in two or more programs, while still facing negative or modest positive rates at low earnings, usually face considerably higher MTRs at higher earnings ranges, often up to 80 percent and even occasionally over 100 percent. While the fraction of families in this category is not large, they constitute about one-fifth of single parent families.
Keywords: Cumulative Marginal Tax Rates; Low-Income Families; Welfare Programs; Tax Policy
JEL Codes: I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cumulative marginal tax rates (MTRs) for low-income families participating in two or more welfare programs (H53) | cumulative marginal tax rates (MTRs) for low-income families (H31) |
| cumulative marginal tax rates (MTRs) for low-income families participating in fewer than two welfare programs (H53) | cumulative marginal tax rates (MTRs) for low-income families (H31) |
| earnings increase for families participating in multiple programs (I24) | cumulative marginal tax rates (MTRs) for low-income families (H31) |
| earnings increase for families at very low earnings (J31) | cumulative marginal tax rates (MTRs) for low-income families (H31) |