Implied marginal tax rates

For the elderly:

Consider, for example, the implications for those 60-64 of earning $20,000 more for one year.  Among the lowest quintile, 51 percent will lose more than 80cen ts of every extra dollar earned, 8 percent will lose between 61 and 80cent s, and 7 percent will lose between 51 and 60 cents…Among those in the top quintile, 39 percent are in a 61 to 80 percent marginal net tax bracket.

That is from a new NBER paper by Auerbach, Kotlikoff, Koehler, and Yu.  And for the poor:

But families participating in two or more programs, while still facing negative or modest positive rates at low earnings, usually face considerably higher MTRs [marginal tax rates] at higher earnings ranges, often up to 80 percent and even occasionally over 100 percent. While the fraction of families in this category is not large, they constitute about one-fifth of single parent families.

That is from Kosar and Moffitt.

And finally for the disabled there seems to be greater policy effectiveness.  In the latest AER Manasi Deshpande considers SSI as it is paid out to low-income youth with disabilities, and here is the crux of her conclusion:

Using a regression discontinuity design based on a 1996 policy change in age 18 medical reviews, I find that youth who are removed from SSI at age 18 recover one-third of the lost SSI cash income in earnings. SSI youth who are removed and stay off SSI earn on average $4,400 annually, and they lose $76,000 in present discounted observed income over the 16 years following removal relative to those who do not receive a review.

Here are ungated versions of the paper.  Income volatility goes up as well for those removed from the rolls, and giving them higher benefits does not seem to shrink their labor supply much.

At the very least reallocating more of America’s transfer payments to the disabled seems worthy of consideration.  Do note the caveat that these results apply to those classified as disabled under earlier (and tougher) standards, not the standards of today.


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