Have all programs use the formula in the EITC

Reader comment on: Perverse Incentives

Submitted by Lyle (United States), Jun 23, 2015 20:22

Set it up so that if you earn $1 more you lose $.30 in benefits as the EITC does. Remove cliffs in the programs. Of course in the case cited others may not want to have to become a boss which a team leader is.

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The Future of Capitalism replies:

The problem is that once you add the 30% benefit phaseout to a 15.3% payroll tax and a 25% income tax (which kicks in for single filers at $37,450), plus whatever state and local income tax applies (about 10% total in New York City), someone in the $30,000 to $40,000 neighborhood is facing an effective marginal tax rate of 80%! So they'd rather either work "off the books," in some illicit activity, or use the time for unpaid at-home work (meal preparation, babysitting for extended family) instead. That stuff is not subject to the 80% marginal rate.

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