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Rep. Tom Petri (R-WI) will be the keynote speaker at a conference on low-income taxpayers to be held May 12 at the American Enterprise Institute in Washington. Petri will discuss the adverse incentives caused by the punishingly high effective marginal tax rates faced by low-income individuals and families as they attempt to work their way out of poverty.
Following Rep. Petri's address, AEI director of economic policy studies Kevin A. Hassett and visiting scholar Lawrence B. Lindsey will present a paper they coauthored with AEI research fellow Aparna Mathur which provides a roadmap for replacing the current system of tax credits with a single low-income tax credit that would provide tax progressivity while reducing complexity and work disincentives. Codirector of the Urban-Brookings Tax Policy Center Rosanne Altshuler and Cato Institute director of tax policy studies Chris Edwards will comment. AEI resident scholar Alan D. Viard will moderate.
Central to Rep. Petri's concern is the steep loss of assistance faced by workers if they work longer hours and gain skills and experience. At various points of a rising income, earning an extra dollar can mean losing 24 cents from the Supplemental Nutrition Assistance Program (food stamps), losing 21 cents from the Earned Income Tax Credit, losing four cents of the Federal Dependent Credit, and paying 7.65 cents in Social Security Payroll Tax. Changes in various state benefits and taxes add to the negative effect.
From $17,000 to $40,000 in earnings, a single mother in Wisconsin typically experiences combined marginal tax rates in excess of 50 percent - averaging 59 percent between $24,000 and $41,000.
At lower income levels, she even approaches a rate of 100 percent at some points.
Putting this into perspective, the U.S. corporate tax rate is 35 percent (one of the highest in the industrialized world). The highest U.S. rate for individuals is 35 percent.
Rep. Petri argues that if we believe people respond to economic incentives, and if we want people to work their way into the middle class, we need to change a system which says that if you're poor and you struggle to earn a higher income, you won't be able to keep enough of it to make it all seem really worthwhile.
The conference on How to Simplify the Code for Low-Income Taxpayers, with a keynote address by Rep. Tom Petri, will take place:
Tuesday, May 12, 2009
Wohlstetter Conference Center
12th Floor
1150 Seventeenth St., N.W.
Washington, D.C. 20036
Rep. Petri will speak at 9 a.m.
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