Sage Journals: Discover world-class research

Abstract

This article provides a more accurate estimate of implicit marginal tax rates (IMTRs) faced by low-income households in all fifty states. Complications arising from multiple program participation, regional differences in wage regulations, and cost of living make former generalizations about representative low-income households in a state potentially problematic. Additionally, it is appropriate to account for differences in work requirements by choosing the relevant margin to estimate the IMTR, and these margins vary by state. This article is the first to consider these margins, and, indeed, the author finds significant variation of IMTRs for different states. One of biggest sources of variation is the structure of child care subsidies provisions and cost. However, changes made to initial assumptions causes the estimated rates to vary in unpredictable ways. Given this complicated and unpredictable nature of the variation, researchers should exercise caution when using estimated IMTRs to examine work incentives of welfare programs.

Keywords

marginal tax rates welfare low-income households

Get full access to this article

View all access options for this article.

References

Acs

Gregory

Coe

Norma B.

Watson

Keith

Lerman

Robert I.

. 1998. Does Work Pay? An Analysis of the Work Incentives under TANF. Washington, DC: The Urban Institute.

Alm

James

Dickert-Conlin

Stacy

Whittington

Leslie A.

. 1999. “Policy Watch, The Marriage Penalty.” Journal of Economic Perspectives 13:193–204.

Ellwood

David T.

Liebman

Jeffrey B.

. 2001. “The Middle Class Parent Penalty: Child Benefits in the U.S. Tax Code.” National Bureau of Economic Research Working Paper No. 8031, Cambridge, MA.

Gallagher

Jerome

Gallagher

Megan

Perese

Kevin

Schreiber

Susan

Watson

Keith

. 1998. Temporary Assistance for Needy Families (TANF) One Year after Federal Welfare Reform: A Description of State TANF Decisions as of October 1997. Washington, DC: The Urban Insitute.

Garfinkel

Irwin

Orr

Larry L.

. 1974. “Welfare Policy and The Employment Rate of AFDC Mothers.” National Tax Journal 27:275–84.

Holt

Stephen D.

Romich

Jennifer L.

. 2007. “Marginal Tax Rates Facing Low-and-Moderate-Income Workers Who Participate in Means-Tested Transfer Programs.” National Tax Journal 50:253–76.

Keane

Michael

Moffitt

Robert

. 1998. “A Structural Model of Multiple Welfare Program Participation and Labor Supply.” International Economic Review 39:553–89.

Koester

Reinhard B.

Kormendi

Roger C.

. 1989. “Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses.” Economic Inquiry 27:367–86.

Lugalla

Terry A.

2005. Participation of Mothers in Government Assistance Programs: 2001. Washington, DC: Technical Report, Household Economic Studies, US Census Bureau.

10.

Meyer

Bruce D.

2002. “Labor Supply at the Extensive and Intensive Margins: The EITC, Welfare, and Hours Worked.” American Economic Review 92:373–9.

11.

Meyer

Bruce D.

, 2010. “The Effects of the Earned Income Tax Credit and Recent Reforms.” In Tax Policy and the Economy. 24: 153–180. Chicago and London: University of Chicago Press; Cambridge, Mass.: National Bureau of Economic Research.

12.

Meyer

Bruce D.

Rosenbaum

Dan T.

. 2000. “Making Single Mothers Work: Recent Changes in Tax and Welfare Policy and their Effects.” National Tax Journal 53:1027–62.

13.

Meyer

Bruce D.

Rosenbaum

Dan T.

. 2001. “Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers.” Quarterly Journal of Economics 116:1063–114.

14.

Meyer

Bruce D.

Sullivan

James X.

. 2004. “The Effects of Welfare and Tax Reform: The Material Well-Being of Single Mothers in the 1980s and 1990s.” Journal of Public Economics 88:1387–420.

15.

Moffitt

Robert A.

2003. “The Temporary Assistance for Needy Families Program.” In Means-tested transfer programs in the United States, 291–363. NBER Conference Report series.

16.

Reed

W. Robert

Rogers

Cynthia L.

Skidmore

Mark

. 2011. “On Estimating Marginal Tax Rates for U.S. States.” National Tax Journal 64:59–84.

17.

Romich

Jennifer L.

2006. “Difficult Calculations: Low–Income Workers and Marginal Tax Rates.” Social Service Review 80:27–66.

18.

Romich

Jennifer L.

Simmelink

Jennifer

Holt

Stephen D.

. 2007. “When Working Harder Does Not Pay: Low-Income Working Families, Tax Liabilities, and Benefit Reductions.” Families in Society 88:418–26.

19.

Sammartino

Frank

Toder

Eric

Maag

Elaine

. 2002. “Providing Federal Assistance for Low-Income Families through the Tax System: A Primer.” Washington, DC: Technical Report, The Urban Institute.

20.

Shaviro

Daniel N.

1999. Effective Marginal Tax Rates on Low-Income Households. Washington, DC: Technical Report, Employment Policies Institute.

21.

Williams

Robert G.

1975. Public Assistance and Work Effort: The Labor Supply of Low-Income Female Heads of Household. Research Report Series No. 119. Princeton, NJ: Princeton University.

22.

Wilson

Paul

Cline

Robert

. 1994. “State Welfare Reform: Integrating Tax Credits and Income Transfers.” National Tax Journal 47:655–76.

23.

Wolfe

Barbara

. 2002. “Incentives, Challenge, and Dilemmas of TANF: A Case Study.” Journal of Policy Analysis and Management 21:577–86.

Estimating Implicit Marginal Tax Rates of Welfare Recipients across the US States

Abstract

Keywords

Get full access to this article

References