A 2023 Federal Reserve Bank of Atlanta report provides a realistic example of two families in Washington D.C., each of which includes an adult and a three-year old child.
[2] Empirical studies have produced mixed evidence on the behavioral effects of marginal tax rates.
Some have argued that a high EMTR, which may offset most or all of a worker's additional earnings with the loss of public benefits, creates a welfare trap that discourages workers from attempting to advance their careers, improve their standard of living, and achieve self-sufficiency.
As such, it is practically difficult for families to anticipate marginal tax rate changes or benefit cliffs and then account for such changes by altering their behavior.
Low-income workers in particular often have limited control over their working hours or conditions, which may further moderate negative impacts.