Variable Earnings and Nonlinear Taxation
Tax and transfer programs transform before-tax income into after-tax income. Income is variable and the tax and transfer system is nonlinear-i.e., marginal tax rates vary. We show that, as a consequence, the tax and transfer system punishes (and rewards) income variability. We calculate the effect of the nonlinearity for several components of the U.S. tax and transfer system, focusing on the low-income population. We find that the system rewards variability for some individuals and penalizes it for others. We conclude that the tax and transfer system punishes and rewards variability in a manner that is both substantial and capricious.
Year of publication: |
1987
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Authors: | Moffitt, Robert ; Rothschild, Michael |
Published in: |
Journal of Human Resources. - University of Wisconsin Press. - Vol. 22.1987, 3
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Publisher: |
University of Wisconsin Press |
Saved in:
Online Resource
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