Estimating Marginal Tax Rates Using a Microsimulation Model

Effective marginal tax rates measure how a household’s material resources change as its earned income rises. For example, when a household’s earnings from work rise by $100, its net resources may rise by less than $100 as those earnings may be subject to payroll and federal, state, and local income taxes, and the size of any public assistance payments the household receives may fall. This paper describes our analysis of the effective marginal tax rates US households face incorporating how changes in income influence eligibility for and participation in public assistance programs as well as changes in work.