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Effective Marginal Tax Rate (effective + marginal_tax_rate)
Selected AbstractsWork Incentives under a New Tax System: The Distribution of Effective Marginal Tax Rates in 2002THE ECONOMIC RECORD, Issue SpecialIssue 2003Gillian Beer Effective marginal tax rates (EMTRs) provide a way of measuring the balance between targeting of welfare payments and the financial incentive to work. High EMTRs result from income tests for welfare payments overlapping with each other and/or the income tax system. Individuals who face high EMTRs over broad ranges of income have little financial incentive to increase their earned income. This paper examines the distribution of EMTRs across the Australian labour force in 2002. It also looks at how the number of people facing high EMTRs has changed since the introduction of the new tax system. [source] ESTIMATING THE TAX BENEFITS OF DEBTJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2001John Graham The standard approach to valuing interest tax shields assumes that full tax benefits are realized on every dollar of interest deduction in every scenario. The approach presented in this paper takes account of the possibility that interest tax shields cannot be used in some scenarios, in part because of variations in the firm's profitability. Because of the dynamic nature of the tax code (e.g., tax-loss carrybacks and carryforwards), it is necessary to consider past and future taxable income when estimating today's effective marginal tax rate. The paper uses a series of numerical examples to show that (1) the incremental value of an extra dollar of interest deduction is equal to the marginal tax rate appropriate for that dollar; and (2) a firm's effective marginal tax rate (and therefore the marginal benefit of incremental interest deductions) can actually decline as the firm takes on additional debt. Based on marginal benefit functions for thousands of firms from 1980,1999, the author concludes that the tax benefits of debt averaged approximately 10% of firm value during the 1980s, while declining to around 8% in the 1990s. By taking maximum advantage of the interest tax shield, the average firm could have increased its value by approximately 15% over the 1980s and 1990s, suggesting that the consequences of being underlevered are significant. Surprisingly, many of the companies that appear best able to service debt (i.e., those with the lowest apparent costs of debt) use the least amount of debt, on average. Treasurers and CFOs should critically reevaluate their companies' debt policies and consider the benefits of additional leverage, even if taking on more debt causes their credit ratings to slip a notch. [source] Do Very High Tax Rates Induce Bunching?THE ECONOMIC RECORD, Issue 270 2009Implications for the Design of Income Contingent Loan Schemes Under the Higher Education Contribution Scheme graduates face a sharp discontinuity in their taxable incomes. At the first repayment threshold, they are required to pay a percentage of their entire income to reduce their debts. This results in an extremely high effective marginal tax rate. Using a sample of taxpayer returns we investigate whether taxpayers bunch below the repayment threshold. We find a statistically significant degree of bunching below the threshold, but the effect is economically small. The result has important implications for the design of income contingent university loan schemes. [source] Evaluation of Policy Options to Encourage Welfare to WorkTHE AUSTRALIAN ECONOMIC REVIEW, Issue 3 2006Hielke Buddelmeyer This article compares five alternative policy options with the January 2006 tax and social security system. Each option is designed to cost a similar amount of approximately $5 billion per year to the government at the observed level of labour supply. The five options include reducing the lowest income tax rate, increasing the tax-free threshold, increasing the low income tax offset, decreasing all taper rates on own and partner's incomes for a number of allowances, and introducing an earned income tax credit. The criteria for comparison are the labour supply responses, the expected budgetary cost to the government after taking into account labour supply responses, the number of winners and losers from the policy change, the effects on the distribution of effective marginal tax rates, and the effects on the number of jobless households. From the results, it is clear that the option to reduce taper rates is dominated by the other options on all criteria. The other four options each have their advantages and disadvantages; no option scores best on all criteria. [source] | ||||||||||