Does It Pay, at the Margin, to Work and Save? Measuring Effective Marginal Taxes on Americans' Labor Supply and Saving
In: Tax Policy and the Economy, Volume 21
Building on Gokhale, Kotlikoff, and Sluchynsky's (2002) study of Americans' incentives to work full or part time, this paper uses ESPlanner, a life-cycle financial planning program, in conjunction with detailed modeling of transfer programs to determine a) total marginal net tax rates on current labor supply, b) total net marginal tax rates on life-cycle labor supply, c) total net marginal tax rates on saving, and d) the tax-arbitrage opportunities available from contributing to retirement accounts. In seeking to provide the most comprehensive analysis to date of fiscal incentives, the paper incorporates federal and state personal income taxes, the FICA payroll tax, federal and state corporate income taxes, federal and state sales and excise taxes, Social Security benefits, Medicare benefits, Medicaid benefits, Foods Stamps, welfare (TAFCD) benefits, and other transfer program benefits. The paper offers four main takeaways. First, thanks to the incredible complexity of the U.S. fiscal system, it's impossible for anyone to understand her incentive to work, save, or contribute to retirement accounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word -- bizarre.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
0048.||Handle:|| RePEc:nbr:nberch:0048||Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Diamond, P., 1994.
"Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates,"
94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
- Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
- Laurence J. Kotlikoff & Ben Marx & Pietro Rizza, 2006.
"Americans' Dependency on Social Security,"
NBER Working Papers
12696, National Bureau of Economic Research, Inc.
- Kristin J. Forbes, 2002.
"How Do Large Depreciations Affect Firm Performance?,"
NBER Working Papers
9095, National Bureau of Economic Research, Inc.
- Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
- Forbes, Kristin, 2002. "How Do Large Depreciations Affect Firm Performance?," Working papers 4379-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Feenberg, Daniel R. & Poterba, James M., 2004.
"The Alternative Minimum Tax and Effective Marginal Tax Rates,"
National Tax Journal,
National Tax Association, vol. 57(2), pages 407-27, June.
- Daniel Feenberg & James Poterba, 2003. "The Alternative Minimum Tax and Effective Marginal Tax Rates," NBER Working Papers 10072, National Bureau of Economic Research, Inc.
- Jagadeesh Gokhale & Laurence J. Kotlikoff & Alexi Sluchynsky, 2002.
"Does it pay to work?,"
0206, Federal Reserve Bank of Cleveland.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:0048. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.