Taxation and Poverty
Low-income US households typically pay Social Security payroll taxes, state and local sales taxes, and possibly, state income taxes. Federal income taxes in the United States and the United Kingdom, among other countries, provide tax subsidies to low-income working families, particularly those with children. These ‘in-work benefits’ raise the incomes of poor families, modestly increase employment, and have negligible effects on hours of work. The design and effectiveness of these provisions depend on details of the tax system, such as the unit of taxation, the degree to which people file tax returns, and the ability of the tax authority to enforce tax rules.
KeywordsEarned Income Tax Credit (USA) Hours of work Implicit tax rates Negative income tax Payroll taxes Social Security in the United States Tax compliance Taxation and poverty Value-added tax Working Tax Credit (UK)
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