1.
Congressional Budget Office
Panel organized by the Department of Health and Human Services,
Office of the Assistant Secretary for Planning and Evaluation, and
Institute for Research on Poverty at the University of Wisconsin
June 26, 2018
Shannon Mok
Tax Analysis Division
Effective Marginal Tax Rates for
Low- and Moderate-Income
Workers in 2016

2.
1
CBO
The marginal tax rate is the
percentage of an additional dollar of
earnings that is unavailable to an
individual because it is paid in taxes or
offset by reduced benefits from
government programs.
Marginal tax rates affect incentives to
work.

3.
2
CBO
Hypothetical Example

4.
3
CBO
As an example, imagine a taxpayer
who is a single parent in
Pennsylvania with income only from
wages.

5.
4
CBO
That person’s after-tax income and
marginal tax rates would include the
effects of:
• Federal and state income taxes,
• Payroll taxes, and
• Means-tested transfers: the
Supplemental Nutrition Assistance
Program (SNAP), Temporary
Assistance for Needy Families
(TANF), cost-sharing subsidies for
health insurance, Medicaid, and the
Children's Health Insurance
Program (CHIP).

6.
5
CBO
Earnings and After-Tax Income for a
Hypothetical Single Parent With One Child, 2016
0 50 100 150 200 250 300 350 400 450
0
50
100
150
200
250
300
350
400
450
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70
Percentage of
Federal Poverty Level
Earnings (Thousands of Dollars)
After-Tax Income
Earnings
Income
(Thousands of Dollars )

7.
6
CBO
Marginal Tax Rate for a Hypothetical Single
Parent With One Child, 2016
-40
-20
0
20
40
60
80
100
0 10 20 30 40 50 60 70
Earnings (Thousands of Dollars)
Tax Rate (Percent)

8.
7
CBO
Simulation Results

9.
8
CBO
CBO’s microsimulation tax model is
used to estimate the distribution of
marginal tax rates among workers
under age 65 with incomes below
450 percent of the federal poverty level.

10.
9
CBO
The distribution of marginal tax rates
depends on the distribution of income,
the extent of taxpayers’ participation in
means-tested programs, and
demographic characteristics of the
population.

11.
10
CBO
The microsimulation tax model is based
on the Internal Revenue Service’s
Statistics of Income public-use tax
file.
Tax returns are statistically matched to
data from the Annual Social and
Economic Supplement to the Current
Population Survey.
The model includes a module to
simulate SNAP eligibility and
benefits.

12.
11
CBO
Marginal Tax Rates for Low- and Moderate-
Income Taxpayers, 2016
0
10
20
30
40
50
60
Below 0 0–9 10–19 20–29 30–39 40–49 50–59 60–69 70–79 80 or
Above
Percent
Marginal Tax Rate (Percent)
Federal Income Tax
Federal and State Income
Tax, Payroll Tax, SNAP, and
Cost-Sharing Subsidies

13.
12
CBO
The marginal tax rates include the combined effects of federal and state income taxes, federal payroll taxes, and benefits
from SNAP and cost-sharing subsidies for health insurance, generally on the basis of 2016 law.
Marginal Tax Rates for All Taxpayers, 2016
0
10
20
30
40
50
60
Below 0 0–9 10–19 20–29 30–39 40–49 50–59 60–69 70–79 80 or
Above
Percent
Marginal Tax Rate (Percent)
Low- and Moderate-Income
Taxpayers
Higher-Income Taxpayers

14.
13
CBO
The marginal tax rates include the combined effects of federal and state income taxes, federal payroll taxes, and benefits
from SNAP and cost-sharing subsidies for health insurance, generally on the basis of 2016 law.
Range of Marginal Tax Rates Between the 10th
and 90th Percentiles for Low- and Moderate-
Income Taxpayers, by Earnings Group, 2016
-20
-10
0
10
20
30
40
50
60
70
0-49 50-99 100-149 150-199 200-249 250-299 300-349 350-399 400 or
Above
Percent
Earnings as a Percentage of
the Federal Poverty Level
Median

15.
14
CBO
Contributions of Tax Provisions and Benefits to
Marginal Tax Rates for Low- and Moderate-
Income Taxpayers, Weighted by Taxpayer, 2016
Share of Taxpayers
Affected (Percent)
Marginal Rate Effect
for Those Affected
(Percent)
Contribution to
Total Marginal Rate
(Percentage points)
Federal Payroll Taxes 99.0 14.0 13.9
Federal Individual Income Taxes 96.6 11.6 11.2
Marginal statutory rate 96.5 9.3 9.0
EITC 28.2 3.7 1.0
Child tax credit 30.2 -7.0 -2.1
Premium assistance tax credit 9.4 12.3 1.2
Alternative minimum tax 0.1 27.8 0
State Individual Income Taxes 60.0 4.4 2.6
SNAP 20.8 14.3 3.0
Cost-Sharing Subsidies for Health
Insurance 7.1 9.5 0.7
Interactions Among Tax Provisions 17.1 -0.6 -0.1
Average Marginal Tax Rate (Percent) 31.3

16.
15
CBO
Contributions of Tax Provisions and Benefits to
Marginal Tax Rates for Low- and Moderate-
Income Taxpayers, Weighted by Earnings, 2016
Share of Earnings
Affected (Percent)
Marginal Rate Effect
for Those Affected
(Percent)
Contribution to
Total Marginal Rate
(Percentage points)
Federal Payroll Taxes 99.2 13.9 13.8
Federal Individual Income Taxes 97.9 15.6 15.3
Marginal statutory rate 97.7 12.1 11.9
EITC 17.3 10.8 1.9
Child tax credit 45.8 -4.3 -2.0
Premium assistance tax credit 8.9 13.2 1.2
Alternative minimum tax 0.2 27.8 0.1
State Individual Income Taxes 69.7 4.8 3.4
SNAP 13.6 11.2 1.5
Cost-Sharing Subsidies for Health
Insurance 5.7 10.1 0.6
Interactions Among Tax Provisions 30.3 -0.7 -0.2
Average Marginal Tax Rate (Percent) 34.3