Early Retirement

Study #310 - Does it Pay to Work More?

Does it pay to work more hours in order to earn more income? The answer depends on what one earns after taxes. Virtually all American households are confronted with high to very high marginal tax rates when they increase the number of hours they work in the current year or in future years. Much of the system’s highest effective marginal taxation comes courtesy of government transfer programs, particularly Medicaid. In fact, penalties for working are astronomical for some households, particularly lower-income families. This study considers the entire panoply of taxes and transfers in measuring the total marginal effective tax rates facing American households with different levels of pre-tax earnings.