Low-Income Workers Struggle to Increase Their Disposable Income
Created on January 7, 2013
Period of low growth of disposable income
Due in part to government welfare programs that take into account income levels, low-income workers sometimes have little incentive to increase their earnings. The example below shows figures for single parents with one child in 2012. As shown in the highlighted section, those earning between $5,000 and $20,000 a year see little growth in disposable income as their earnings increase. On average, they will raise their disposable income about $15 for every additional $100 in earnings—essentially an 85 percent marginal tax rate.
Source: Congressional Budget Office, Effective Marginal Tax Rates for Low- and Moderate-Income Workers, November 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-2012- MarginalTaxRates.pdf (accessed January 7, 2013).