Effective Marginal Tax Rates
Because reductions of means tested benefits are additive, they can lead to a very high effective marginal tax rate of tax. For example, a person with children earning $95,000 could essentially be taxed 38% income tax plus 30% in loss of FTB-A, an effective marginal tax rate of 68%. If their partner earned $7,000 then their partner could pay an effective marginal tax rate of 30% loss of FTB-A, plus 20% loss of FTB-B, giving a total of 50%. If they earn $35,000 then their effective tax rate could be 30% income tax plus 30% loss of FTB-A plus 4% loss of low income rebate giving a total of 64%.
If other means tested allowances are payable (e.g. child care benefits, superannuation co-contribution, payments for a disability etc.) then the effective rate can be over 100%.
The means testing reflects a policy of targeting welfare to people in need. However, some argue that this creates a work disincentive for middle-class families. Further, Australia’s means-tested tax and spending programs are extraordinarily complex.
Read more about this topic: Income Tax In Australia
Famous quotes containing the words effective, marginal, tax and/or rates:
“The atomic bomb certainly is the most powerful of all weapons, but it is conclusively powerful and effective only in the hands of the nation which controls the sky.”
—Lyndon Baines Johnson (1908–1973)
“Of course I’m a black writer.... I’m not just a black writer, but categories like black writer, woman writer and Latin American writer aren’t marginal anymore. We have to acknowledge that the thing we call “literature” is more pluralistic now, just as society ought to be. The melting pot never worked. We ought to be able to accept on equal terms everybody from the Hassidim to Walter Lippmann, from the Rastafarians to Ralph Bunche.”
—Toni Morrison (b. 1931)
“...many tax collectors and sinners were also sitting with Jesus.”
—Bible: New Testament, Mark 2:15.
“One of the most important findings to come out of our research is that being where you want to be is good for you. We found a very strong correlation between preferring the role you are in and well-being. The homemaker who is at home because she likes that “job,” because it meets her own desires and needs, tends to feel good about her life. The woman at work who wants to be there also rates high in well-being.”
—Grace Baruch (20th century)