NEWMAN!
" . . . during the phaseout of EITC,
for those making above $13,000 per year with a couple of kids, they face
something like a 35% tax rate from FICA plus EITC phaseout on all additional
income, . . .
It just so happens that I'm finishing a paper
now w/Bob Cherry on expanding the EITC that would
reduce the phase-out rate.
I happen not to put much stock in the so-called
marginal implicit tax rate. I don't think people
making $16,500 determine whether they will optimize
by moving to $16,501 or $16,499. The main thing
under the EITC is that, for those eligible, they
have more income w/the credit than without it.
You have to be careful not to conflate marginal
tax rates (i.e., the EITC, where for many there
is no positive tax liability) and shares of income
in taxes (i.e., the CTJ state of Texas number).
The numbers are not comparable and shouldn't
be added together.
" . . . And remember, for those without kids, they basically don't get the
EITC, so that 15% tax on wages is added directly to their 15% tax on new
income . . .
To be more precise, the EITC essentially rebates the
employee portion of the payroll tax for wages up to
$5,700 and phases out by $10,200.
There is no income tax on single persons
for incomes less than $7,050. Above this the marginal
rate is 15 percent. The average rate of income tax
does not hit 15 percent for a single person until
income rises past $40,000. So adding marginal and
average tax rates gives you somewhat less accuracy than
the proverbial broken clock.
mbs
