MarginalTaxRate

Updated through Version 1.11

The Marginal Tax Rate (MTR) module calculates marginal tax rates--the change in net income relative to a change in earnings--of households, families and adults. The marginal tax rate is positive (negative) if net income increases by an amount that is less (more) than the increase in earnings. The module uses previously run simulations as input. Users determine which simulations are relevant to their analyses and specify the applicable program rules. The MTR module uses only the program rules that are specified in the calculations it performs. A typical MTR run setup would specify a set of baseline simulations that are compared with an equal number of alternative simulations that reflect the impact of a policy change imposed by the TRIM3 JobMod module.

The MTR module produces "basic" tables that contain summary information on the distribution of marginal tax rates across the total population, "characteristic" tables that summarize marginal tax rates by demographic characteristics--family type, poverty status, family income, race and age of head--and "detail" tables that show changes in the tax and transfer programs that affect the marginal tax rates and that provide distributional detail by type of household and family and by family poverty status. All tabulations are generated for three different units: households, families, and adults.

The remainder of this documentation provides more detailed information on the following topics:

The Family Unit Definition
How Marginal Tax Rates are Calculated
Programs Simulated and Associated Program Rules
Marginal Tax Rate Table Information
Marginal Tax Rate Output Variables

The Family Unit Definition

Users specify the appropriate definition for the family structure to be used in the family-level tables. Program rule FamilyDefinition permits users to define families either narrowly or broadly. A narrow definition of family counts related subfamilies separately from primary families. A broad definition of family includes related subfamilies as a part of a household's primary family. Program rule CohabitingAdultOption allows users to decide whether to combine the families of cohabiting adults. When a user chooses to combine families, (s)he must also supply the variables that identify the parents of children in households using the ParentIDs program rule. The MTR module also uses ExpandedRelationship from the input schema data to identify partners of household heads when CohabitingAdultOption specifies that the families of cohabiting adults are to be combined. These features permit users to define families in a way that best suits the objectives of their analyses, and they provide a basis for studying the impact of family structure on marginal tax rates.

The MTR module splits taxes and transfers in a manner that is appropriate for each of the taxes and transfers included in a simulation so that all people affected by a program are assigned their share of the tax or transfer. For instance, federal and state taxes are divided equally among all persons in a tax unit, child care expenses are split among the family heads of the child care unit, and housing subsidies and LIHEAP benefits are divided among all persons in a household. Once the MTR module determines person-level benefits for all the programs an analyst has selected, taxes and transfers are summed across the household and the family defined by an analyst, and person-level marginal tax rate calculations account for each person’s share of benefits and expenses. The table shown below summarizes the treatment of simulated taxes and benefits for each program that may be included in a marginal tax rate simulation.

Simulation	How Simulated Taxes and Benefits are Treated by the MTR Module
ChildCare	Simulated child care expenses are written only to the head of the child care unit by the TRIM3 ChildCare module. The MTR module splits the child care expenses between the head and spouse/partner of a family. When families are defined broadly and/or the families of cohabiting adults are combined, there may be more than two heads per family among which the expenses are split. Marginal tax rates calculated for adults include only the portion of child-care expenses attributed to that individual.
ChildSupport	Separate child support income amounts are simulated for children and adults by the TRIM3 ChildSupport module. To calculate household- and family-level marginal tax rates, the MTR module sums the simulated person-level child support amounts across all persons in a household or family. Marginal tax rates calculated for adults include only the adult amount simulated for the individual worker.
FederalTax, StateTax	To calculate household- and family-level marginal tax rates, the MTR module first determines each person's share of taxes based on his/her tax unit ID and the total taxes simulated for the tax unit. To calculate marginal tax rates for the household or family, the MTR module sums person-level amounts over all persons in the household or family. Marginal tax rates calculated for adults include only amounts attributed to that adult.
LIHEAP, PubOrSubsidizedHousing	The LIHEAP and PubOrSubsidized modules simulate household-level benefits that are split equally among all persons in a household and written to the records of all persons in participating units. This person-level benefit amount is aggregated by the MTR module for the calculation of household- and family-level marginal tax rates. Marginal tax rates calculated for adults include only the amount attributed to the individual.
Medicaid	The MTR module identifies Medicaid participants from enrollment type that is simulated for each person in a participating Medicaid unit. With that information, the MTR module determines the number of participants in a household or family unit.
PayrollTaxes	Payroll taxes are simulated for each individual worker. To calculate household- and family-level marginal tax rates, the MTR module sums the person-level amounts over all persons in the household or family. Marginal tax rates calculated for adults include only the individual worker's simulated payroll tax.
SNAP, SSI, TANF, UnemploymentComp, WIC	The SNAP, SSI, TANF, UnemploymentComp and WIC modules simulate person-level benefits for each person in participating units. To calculate household- and family-level marginal tax rates, the MTR module sums the person-level amounts over all persons in a household or family. Marginal tax rates calculated for adults include only the benefits simulated for that individual.

How Marginal Tax Rates are Calculated

Marginal tax rates are calculated as 1 - (change in net income / change in earnings). If a worker earning $10,000 in wages realized a wage increase of $1,000 and was able to keep all of the earnings increase without experiencing a net change in taxes and transfers, his marginal tax rate would be zero. If increased taxes and/or loss of program benefits offset a portion of the earnings increase, his/her marginal tax rate would be positive. For example, if the additional $1,000 in earnings resulted in losing $300 in Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) benefits and no other changes, the worker’s marginal tax rate would be calculated as 1 - ($700 / $1000) or 30 percent. A third possibility is that additional earnings may result in additional tax or transfer benefits, which would result in a negative marginal tax rate. This is especially likely if an earnings increase is the result of a new job or increased hours of work, as additional hours of work may qualify a worker for child care subsidies, the EITC, child tax credits, or other benefits for which (s)he did not qualify prior to the additional work.

Programs Simulated and Associated Program Rules

For every MarginalTaxRate simulation, users must supply values for BaseEarnings and AltEarnings, program rules that are used to specify person-level monthly earnings in the baseline and alternative simulations. Typically, BaseEarnings will contain MonthlyEarnings from the baseline input data, whereas AltEarnings will contain the rMonthlyEarnings output variable from the JobMod simulation used for the alternative simulations. Additionally, MTR program rule FamilyPovertyRate is used to classify families by poverty status in the characteristics and detail tables. Typically, StandardPovertyRatio, which is output by the TRIM3 Poverty module, will be used for FamilyPovertyRate.

At the user's discretion, the MarginalTaxRate module can include the following simulations using the rules associated with each. Users should specify the appropriate output variables from previously run simulations for each of the listed program rules.

Simulation	Program Rule	Definition
ChildCare	AltChildCareExpense	Simulated monthly child care expenses following a job change
	AltChildCareUnitID	ChildCare unit ID following a job change
	BaseChildCareExpense	Simulated monthly child care expenses prior to a job change
	BaseChildCareUnitID	ChildCare unit ID prior to a job change
ChildSupport	AltCSIncome	Simulated or reported monthly child support income following a job change
	BaseCSIncome	Simulated or reported monthly child support income prior to job change
FederalTax	AltFederalTax	Simulated annual federal tax following a job change
	AltFedTaxUnitID	Federal tax unit ID following a job change
	BaseFederalTax	Simulated annual federal tax prior to a job change
	BaseFedTaxUnitID	Federal tax unit ID prior to a job change
LIHEAP	AltEnergyAssistance	Person-level simulated annual energy assistance income following a job change (typically LIHEAPBenefit)
	BaseEnergyAssistance	Person-level simulated annual energy assistance income prior to a job change (typically LIHEAPBenefit)
Medicaid	AltMedicaidType	Simulated monthly medicaid enrollment type following a job change
	BaseMedicaidType	Simulated monthly medicaid enrollment type prior to a job change
PayrollTax	AltPayrollTax	Simulated annual payroll tax following a job change
	BasePayrollTax	Simulated annual payroll tax prior to a job change
PubOrSubsidizedHousing	AltHousingSubsidy	Person-level monthly simulated housing assistance following a job change (typically MonthlySubsidyReceivePerPerson)
	BaseHousingSubsidy	Person-level monthly simulated housing assistance prior to a job change (typically MonthlySubsidyReceivePerPerson)
SNAP	AltSNAPBenefit	Simulated person-level monthly SNAP benefit received following a job change
	BaseSNAPBenefit	Simulated person-level monthly SNAP benefit received prior to a job change
SSI	AltSSIPBenefit	Simulated person-level monthly SSI benefit received following a job change
	BaseSSIPBenefit	Simulated person-level monthly SSI benefit received prior to a job change
StateTax	AltStateTax	Simulated annual state tax following a job change
	AltStateTaxUnitID	State tax unit ID following a job change
	BaseStateTax	Simulated annual state tax prior to a job change
	BaseStateTaxUnitID	State tax unit ID prior to a job change
TANF	AltTANFBenefit	Simulated person-level monthly TANF benefit received following a job change
	BaseTANFBenefit	Simulated person-level monthly TANF benefit received prior to a job change
UnemploymentComp	AltUnemploymentComp	Simulated monthly unemployment compensation received following a job change
	BaseUnemploymentComp	Simulated monthly unemployment compensation received prior to a job change
WIC	AltWICBenefit	Simulated person-level monthly WIC benefit received following a job change
	BaseWICBenefit	Simulated person-level monthly WIC benefit received prior to a job change

Marginal Tax Rate Table Information

The MTR module produces the following tables. All family tables are based on the family unit defined by users with program rules FamilyDefinition and CohabitingAdultOption.

Table ID Contents Universe

B1 Household Marginal Tax Rate Distribution All Households

B2 Family Marginal Tax Rate Distribution All Families

B3 Adult Marginal Tax Rate Distribution All Adults

C1 Marginal Tax Rate Statistics by Household Characteristics¹ All Households

C2 Marginal Tax Rate Statistics by Family Characteristics¹ All Families

C3 Marginal Tax Rate Statistics by Person Characteristics¹ All Adults

D1 Mean Non-zero Income and Expense Amounts for Households with a Change in Earnings All Households with non-zero MTR

D2 Mean Non-zero Income and Expense Amounts for Families with a Change in Earnings All Families with non-zero MTR

D3 Mean Non-zero Income and Expense Amounts for Adults with a Change in Earnings All Adults with non-zero MTR

D4 Detailed Distribution of MTR by Marital Status of Household Head and Presence of Children All Households

D5 Detailed Distribution of MTR by Marital Status of Family Head and Presence of Children All Families

D6 Detailed Distribution of MTR by Person Marital Status of and Presence of Children All Adults

D7 Detailed Distribution of MTR by Poverty Status of Primary Families All Households

D8 Detailed Distribution of MTR by Poverty Status of Families All Families

D9 Detailed Distribution of MTR by Poverty Status of Person's Family All Adults

¹Characteristics tables show households, families, and adults by their characteristics in the baseline simulation(s). A person who has no earnings or other income in the baseline who is given a job by the JobMod module would be categorized in the person-level characteristics table as a person having no income. This avoids situations where people move across income groups in a series of simulations, making changes difficult to interpret.

Marginal Tax Rate Output Variables

The MarginalTaxRate module produces an extensive list of output variables including person-level variables containing the calculated marginal tax rates for all adults, families and households, and earnings and total income in both the baseline and alternative simulations. The list of output variables may be viewed here.