In reference to welfare recipients, the high effective marginal tax rate on earnings
A)encourages self-sufficiency
B)encourages more labor market activity
C)discourages employment
D)increases total family income if the marginal tax rate exceeds 100 percent
E)tends to increase welfare benefits as more income is earned up to the "means-test" threshold

Question

Quizplus · Accepted Answer

The high effective marginal tax rate on earnings, which refers to the reduction in welfare benefits for every additional dollar earned, discourages employment among welfare recipients. As they earn more, they risk losing their benefits, resulting in a situation where they have less disposable income when they work than when they rely solely on welfare. This situation creates a disincentive for welfare recipients to work, which perpetuates their dependence on government assistance.

In Reference to Welfare Recipients, the High Effective Marginal Tax