As is the case with all such benefits, the subsidies raise the implicit tax rate that their recipients face, and this can act as disincentive to work.
As one blogger put it, "Just because poverty rates didn't rise doesn't mean that the government imposed a 100 percent implicit tax rate".
The marginal federal and state income tax rate goes up as families earn more and enter a higher tax bracket, but the marginal implicit tax rate goes down once taxpayers have exceeded the earnings at which they are no longer eligible for means-tested benefits.
They refer to this as the "implicit" tax rate on work.
At age 70 the implicit tax rate on most workers (including the single male workers depicted in the chart) jumps again, to 50% (for every $10,000 the worker costs, he only gets $5,000 in benefits).
We therefore compute as an implicit tax rate the ratio of the (negative) accrual to the wage that workers would earn if they postponed full retirement at age a.
As pointed out by Dekkers (2007), the advantage of using the implicit tax rate over the SSA is that it has no scale, and therefore is suitable for comparisons between groups of individuals.
We proceed to analyze the impact of two more incentive measures, namely the implicit tax rate on postponing retirement and the peak value, on the hazard of entering retirement either fully or partially.
Entitlement to Income Support depends on the number and ages of children and it imposes a 100% implicit tax rate on all sources of household income above some minimal level of earnings.
Second, it provides a growing subsidy on the upward sloping part of the schedule (the "phase-in" range), and then at higher income, a higher implicit tax rate as the subsidy is phased out.
