Variations in Negative Tax Rates in Current Public Assistance Programs: An Example of Administrative Discretion

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With the welfare reform measures recently considered by the Congress, a great deal of attention has been paid to the marginal tax rate that might be used in any new program. Surprisingly, little attention is paid to the marginal tax rate in use in current programs. This paper considers the way in which the actual tax rate varies from the tax rate which is specified in federal statutes, and uses data from a survey of Vermont welfare cases to illustrate the large variance in average and, hence, marginal negative tax rates faced by current welfare recipients. The article also explores the ways in which this variation is created.