TY - JOUR AU - Kotlikoff,Laurence J. AU - Rapson,David TI - Does It Pay, at the Margin, to Work and Save? -- Measuring Effective Marginal Taxes on Americans' Labor Supply and Saving JF - National Bureau of Economic Research Working Paper Series VL - No. 12533 PY - 2006 Y2 - September 2006 UR - http://www.nber.org/papers/w12533 L1 - http://www.nber.org/papers/w12533.pdf N1 - Author contact info: Laurence J. Kotlikoff Department of Economics Boston University 270 Bay State Road Boston, MA 02215 Tel: 617/353-4002 Fax: 617/353-4001 E-Mail: kotlikoff@bu.edu David Rapson Department of Economics UC Davis One Shields Ave Davis, CA 95616 Tel: 530-302-1024 Fax: 530-752-9382 E-Mail: dsrapson@ucdavis.edu AB - Building on Gokhale, Kotlikoff, and Sluchynsky's (2002) study of Americans' incentives to work full or part time, this paper uses ESPlanner, a life-cycle financial planning program, in conjunction with detailed modeling of transfer programs to determine a) total marginal net tax rates on current labor supply, b) total net marginal tax rates on life-cycle labor supply, c) total net marginal tax rates on saving, and d) the tax-arbitrage opportunities available from contributing to retirement accounts. In seeking to provide the most comprehensive analysis to date of fiscal incentives, the paper incorporates federal and state personal income taxes, the FICA payroll tax, federal and state corporate income taxes, federal and state sales and excise taxes, Social Security benefits, Medicare benefits, Medicaid benefits, Foods Stamps, welfare (TAFCD) benefits, and other transfer program benefits. The paper offers four main takeaways. First, thanks to the incredible complexity of the U.S. fiscal system, it's impossible for anyone to understand her incentive to work, save, or contribute to retirement accounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word -- bizarre. ER -