4 ms·

I'd be interested to see what income minus tax looks like. It looks like there would be "income traps", where earning a higher base salary would actually leave

by wisty 17y ago

I'd be interested to see what income minus tax looks like. It looks like there would be "income traps", where earning a higher base salary would actually leave you less well off. Good to see the USA rewarding hard workers!

_delirium 17y ago
There are only income traps if the marginal rate's >100% at any point, which it isn't here. Since the marginal rate's never above 44%, it means there's never a case when earning an extra $1 won't gain you at least an extra $0.56 in your pocket.
- mattmaroon 17y ago
  A lot of people don't understand what marginal tax rate means and how taxes work in that regards. I'm guessing the parent was confusing it for average tax rate.
  - wisty 17y ago
    Yep. I was.
- emmett 17y ago
  The numbers cited in the post (as he points out) do not take into account all the antipoverty programs we have. When you take those into account you get a graph like this: http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABDg/dBO8WC5e4wU/s1600-h/implicit+tax+rates+2.png http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABD... There actually is a dead zone. Which is horrible.
  - _delirium 17y ago
    Part of the difference is also that he's looking at single people, while your linked graph is for a family of three, and there are much more generous grants/transfers for families. There has been some effort to get rid of dead zones by changing thresholds into phase-out zones, but not everything's been changed, and some programs probably need more gradual phase-outs, especially if you consider their impact when taken together. There's an issue though that gradual phase-outs are hard to structure in a way that's politically popular: most people seem to have a mental phase-out that's fairly steep, so it's popular to give food stamps to a family of 4 making, say, $18k, but unpopular to give food stamps to a family of 4 making, say, $30k. But if you phase them out from 100% to 0% within a $12k range, you produce a significant implied tax over that range. Either the phase-out has to start so low that genuinely poor people get <100%, or it has to go up high enough that people who no longer really qualify as poor get some low but non-zero amount.
  - hugh3 17y ago
    Luckily anyone smart enough to figure out the existence of the dead zone is smart enough to be making well over $40K anyway.

by wisty 17y ago

_delirium 17y ago

There are only income traps if the marginal rate's >100% at any point, which it isn't here. Since the marginal rate's never above 44%, it means there's never a case when earning an extra $1 won't gain you at least an extra $0.56 in your pocket.

mattmaroon 17y ago
A lot of people don't understand what marginal tax rate means and how taxes work in that regards. I'm guessing the parent was confusing it for average tax rate.
- wisty 17y ago
  Yep. I was.
emmett 17y ago
The numbers cited in the post (as he points out) do not take into account all the antipoverty programs we have. When you take those into account you get a graph like this: http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABDg/dBO8WC5e4wU/s1600-h/implicit+tax+rates+2.png http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABD... There actually is a dead zone. Which is horrible.
- _delirium 17y ago
  Part of the difference is also that he's looking at single people, while your linked graph is for a family of three, and there are much more generous grants/transfers for families. There has been some effort to get rid of dead zones by changing thresholds into phase-out zones, but not everything's been changed, and some programs probably need more gradual phase-outs, especially if you consider their impact when taken together. There's an issue though that gradual phase-outs are hard to structure in a way that's politically popular: most people seem to have a mental phase-out that's fairly steep, so it's popular to give food stamps to a family of 4 making, say, $18k, but unpopular to give food stamps to a family of 4 making, say, $30k. But if you phase them out from 100% to 0% within a $12k range, you produce a significant implied tax over that range. Either the phase-out has to start so low that genuinely poor people get <100%, or it has to go up high enough that people who no longer really qualify as poor get some low but non-zero amount.
- hugh3 17y ago
  Luckily anyone smart enough to figure out the existence of the dead zone is smart enough to be making well over $40K anyway.