Modeling the Impact of Federal Taxes,Subsidies,and Grants on Family Resources

Abstract

As states take on more responsibility for health, education, and welfare programs, the interactions between state and federal policies become critical in informed decision making. The connection between state financial assistance and federal tax regulations has grown very complex. In 1997 alone, over 800 changes were made to the federal tax code. This article presents two computer applications developed by the author that analyze the complicated relationships among tax credits, transfer payments, subsidies, and grants. The family resource wage progression (FRWP) model calculates federal tax liability, earned-income tax credits, food stamp benefits, and TANF (welfare) grants for low-income families. The higher education resource for modeling aid and need (HERMAN) displays the parent, student, and taxpayer contributions to the cost of higher education at various levels of income. Both applications offer an efficient means to investigate how tax credits and other benefits alter the financial circumstances of working families.

Keywords

state fiscal policy tax credits tax liability TANF grant child care copayments dependent care tax credit HOPE tax credit college financial aid computer modeling

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References

Conklin, K. D. (1998). Federal tuition tax credits and state higher education policy: A guide for state policymakers. San Jose, CA: National Center for Public Policy and Higher Education.

Harding, E. , & Harmon, L. (1998). Washington State’s student financial aid programs (Document No. 98-01-4101). Olympia: Washington State Institute for Public Policy.

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Mayfield, J. , & Burley, M. (1997). Child care copayment affordability study: Are Washington State’s child care copayments reasonable and affordable? (Document No. 97-12-3301). Olympia: Washington State Institute for Public Policy.