Volume 17, Number 4 (Fall) 1982
Halsey, Harlan I. 1982. "The Taxation of Transfer Income." Journal of Human Resources 17(4):558-580.
In this paper we provide a model for evaluating the total marginal tax rate faced by households participating in several transfer programs and paying state and federal income taxes. Because the programs may not be administered according to statute and households may avoid taxation through income underreporting, or both, we distinguish among statutory, as-administered, and effective taxation. We then estimate AFDC taxation for each member of the household, using AFDC data and data collected separately in the Seattle and Denver Income Maintenance Experiments. We find that the AFDC program is administered accurately, but that substantial income underreporting reduces the effective total marginal tax rate of female heads of household from 66 2/3 to about 50 percent and that the marginal tax rates of other household members are lower.
The author is Senior Economist, SRI International, Menlo Park, Calif.
* The research reported herein was performed pursuant to contracts with the
States of Washington and Colorado, prime contractors for the Department of
Health, Education, and Welfare under contract numbers SRI-70-53 and
HEW-100-78-004, respectively. The opinions expressed in the paper are those of
the author and should not be construed as representing the opinions or policies
of the States of Washington or Colorado or any agency of the United States
government. Mordecai Kurz, John Pencavel, Michael Hurd, and Michael Soskin were
most generous with their comments on earlier drafts of this paper. I gratefully
acknowledge their efforts as well as the research assistance of Victoria
Wooding.
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