From Welfare to Work: Improving the Interface of Tax and Social Security

The interface of the income tax and social security systems and the overlapping of different income tests can result in very high effective marginal rates of tax. This can create strong disincentives for those who receive cash transfers to move off welfare and/or increase their private income. This paper presents a scheme that aims to reduce effective marginal tax rates by removing the overlapping of income tests, introducing an earnings credit and altering the income tax scale.