In reference to welfare recipients,the high effective marginal tax rate on earnings _____
A)encourages people to become self-employed.
B)encourages more labor market activity.
C)may discourage self-sufficiency.
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 may discourage self-sufficiency among welfare recipients. This is because as a recipient earns more income and moves above the "means-test" threshold, they can lose some or all of their benefits, effectively reducing their income. This creates a disincentive for recipients to increase their earnings, as they may not see a significant increase in their overall income due to the loss of benefits. As a result, some may choose to remain on welfare rather than risk losing their benefits and experiencing a decrease in their overall income.

In Reference to Welfare Recipients,the High Effective Marginal Tax Rate