Editorial: 80% Marginal Tax Rates? The Dark Side Of Welfare Programs

At a recent panel on poverty, the Congressional Budget Office made a presentation showing how income and benefit programs interact in ways that can heavily discourage work.

The CBO looked at a single parent with one child living in Pennsylvania, and what would happen to her net income — from wages and benefits — as she started to make more money from work. That meant counting not just how much she’d pay in income taxes and payroll taxes on each extra dollar of earnings, but how much she’d lose in food stamps, health subsidies, and other income-based programs.

The result is rather disturbing. If she took a job that paid $10,000 a year, her effective marginal tax rate would be a 50%. That is, for every dollar she made, she’d gain only 50 cents after taxes and benefit cuts.

When her income reached $20,000, the effective marginal rate climbed to a stunning 80%.

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