Further, we show these calculated rates may exaggerate the effective marginal tax rates
families face because they assume income is earned equally throughout the year. We
provide a second set of calculations that assumes a person receives all her earnings in
six months. Although her taxes are unaffected due to the annual tax accounting period,
she could retain transfer payments for the half year she is not working. Here, we find
that the effective marginal rate for a parent moving from no earnings to poverty-level
earnings varies from –25.1 percent in New Jersey to 12.5 percent in Hawaii. That is, in
New Jersey, moving from no earnings to earning at the FPL for six months out of the
year enhances net household income by the increase in earnings plus 25.1 cents per
each dollar earned. In Hawaii, the same worker would keep only 87.5 cents of each
Further, we show these calculated rates may exaggerate the effective marginal tax ratesfamilies face because they assume income is earned equally throughout the year. Weprovide a second set of calculations that assumes a person receives all her earnings insix months. Although her taxes are unaffected due to the annual tax accounting period,she could retain transfer payments for the half year she is not working. Here, we findthat the effective marginal rate for a parent moving from no earnings to poverty-levelearnings varies from –25.1 percent in New Jersey to 12.5 percent in Hawaii. That is, inNew Jersey, moving from no earnings to earning at the FPL for six months out of theyear enhances net household income by the increase in earnings plus 25.1 cents pereach dollar earned. In Hawaii, the same worker would keep only 87.5 cents of each
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