>On Behalf Of Max Sawicky
> I happen not to put much stock in the so-called
> marginal implicit tax rate. . . .
NN:
That's one main thing, but I think you are falling into serious
number-crunching wonkery if you don't think it matters to a person that when
they get a raise, the government takes a large chunk of it, especially when
they are poor.
>>>>>>>>>>>>>>>
[mbs] A concern with marginal tax rates is founded on behavior.
My skepticism rests on the question of behavioral effects.
Certainly a raise that is consumed by the Gov is demoralizing.
Whether someone has the flexibility and inclination to change
their work schedules is the reason to be interested in the
marginal rates.
Equity is a different matter. Equity in this context hinges
on after-tax income. I'd take a higher marginal tax rate if
it meant a higher after-tax income every time. So would most
people. Certainly I think the tax bite -- reflected in the
*average* tax rate -- for a low income family
matters and I would like to reduce it.
Your calculations are slightly off-kilter.
You forgot about the child credits. Also, if
the couple saves for college they can shield the
raise from tax altogether with an IRA. Also,
the total FICA rate is 15.3, but if I
get a raise of $1,000, I only lose 7.65 percent of it.
The boss pays another 7.65 percent. Of course, this
means my raise was not $1,000; it's really $1,076.50
and I 'lost' $153, in the sense that half of what
I 'paid' I never laid hands on in the first place.)
But I get your drift. I think the marginal implicit tax
rate is an oblique way to deal with tax fairness.
>>>>>>>>>>>>>>>>
NN: . . . This is how people feel the tax system's effect on their lives.
You can argue that the early large deductions and EITC make the overall
progressivity strong on paper, but most people think it sucks to be making
that little, so the nominal tax "advantages" of being there are less
appreciated. What people feel is the tax burden as they ask for raise, then
realize that the government is taking a large portion of the pay increase
they struggled with their employer to get.
>>>>>>>>>>>
The deductions and EITC make the system progressive
in reality, not "on paper."
The problem is if you want to do an earned income tax
credit (or a negative income tax), the more you give, the
more you have to take away, and the higher the implicit
marginal tax rate must be in the take-away zone.
So your linkage of equity and the marginal rate is
mostly a red herring.
If you want a low marginal rate at the bottom, you must
dispense with income support down there. Then tax credits
would not be refundable and the income tax would fail to
offset any of the burden of the payroll tax and sales
taxes. Which I assume you don't want. Such are the
dilemmas of tax politics.
mbs
