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)
“In realms of knowledge, we bequeath our books,
And woe pursue who to a master quotes
The funnier of our witty marginal notes.”
—Philip Larkin (1922–1986)
“If you tax too high, the revenue will yield nothing.”
—Ralph Waldo Emerson (1803–1882)
“[The] elderly and timid single gentleman in Paris ... never drove down the Champs Elysees without expecting an accident, and commonly witnessing one; or found himself in the neighborhood of an official without calculating the chances of a bomb. So long as the rates of progress held good, these bombs would double in force and number every ten years.”
—Henry Brooks Adams (1838–1918)