These high tax rates result from increasing direct taxes (both state and
federal) as well as decreasing transfer payments (including both Supplemental Nutrition
Assistance Program benefits and Temporary Assistance for Needy Families).
Depending on which state a person lives, a single parent with two children can face
an average marginal tax rate of over 100 percent or as low as 26.6 percent as they
move from the poverty level of income to 150 percent of the poverty level. If her
earnings are limited to only six months of the year, she may retain transfer benefits
for the remaining six months, lowering her marginal rate over the same income
range to between 66.0 percent and –17.7 percent for those additional earnings. Our
analysis shows how sensitive marginal tax rates are to assumptions about earnings
patterns and program participation.