View Research by Author - Deborah Kobes

Publications

This paper describes the importance of defined contribution (DC) plan assets and Individual Retirement Account (IRA) assets to retirement security for older adults and examines how they dispose of these assets when they retire. The analysis is based on nationally representative data from the 1992-2002 waves of the Health and Retirement Study. Although a large and growing share of the older population has participated in DC plans and contributed to IRAs, the results show that few older adults elect to convert their balances into annuities when they retire. Careful modeling of the annuitization decision by older adults is required to understand the reasons behind the low rates of annuitization and to evaluate their implications for retirement security.

The federal earned income tax credit (EITC) was established in 1975 as part of the individual income tax to offset payroll taxes for low-income working families. After several expansions, the refundable tax credit is now the largest federal cash assistance program for low-income families. A growing number of states have adopted their own EITCs.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) cut the top tax rate on long-term capital gains from 20 percent to 15 percent, the lowest level since World War II. JGTRRA also cut the rate on dividends to 15 percent; previously dividends had been taxed as ordinary income. In contrast, capital gains have been taxed at lower rates than ordinary income for most of the history of the income tax. And reductions in capital gains tax rates have usually corresponded with reductions in tax rates on ordinary income.

In 2001, Congress significantly expanded the scope of Individual Retirement Accounts (IRA). This paper uses variation in IRA eligibility rules in the 1980s and 1990s to determine whether more widespread access to IRAs undermines traditional employer-sponsored pensions, especially 401(k)-type plans. This paper develops a model of the value of fringe benefits with a special focus on the valuation of pensions. The theoretical model illustrates how IRAs can reduce demand for employer-sponsored pensions. The empirical results, based on a model of compensation and job turnover, indicate that workers highly value pensions and health insurance. The findings suggest that restrictions enacted in 1986 on IRAs did not significantly increase workers' demand for employer-sponsored pensions.

The composition of income reported on tax returns changes markedly as income increases. On most tax returns, wages and salaries are the dominant source of income. Capital gains become more significant at higher incomes, but even at adjusted gross income (AGI) of $200,000 to $500,000, they only averaged about 12 percent of income in 2000.

Before enactment of the Tax Reform Act on 1986, the individual tax code included 25 marginal tax rates. No more than 10 percent of tax filers were in a single bracket and eight brackets included less than 1 percentage of filers. Read this article to learn more about the history of Income Tax Brackets.

This paper examines the data on health insurance coverage and discusses trends in coverage. It considers the problems in the health insurance market and their implications on the nature and scope of government intervention. It uses the Urban Institute's Transfer Income Model (TRIM) to show who gains from the current tax exclusion, and examines the mismatch between current subsidy schemes and the problems in the health insurance market that an ideal subsidy might mitigate. Using TRIM, we simulate the effects of illustrative tax subsidy proposals on the distribution of tax benefits and discuss the effectiveness of those proposals at addressing health insurance market failures.

Policymakers are considering a variety of new tax credit proposals to expand health insurance coverage. Understanding how current tax subsidies work and their role in supporting employer-sponsored insurance (ESI) is important when designing such policies. This brief presents essential information about the structure and distribution of existing tax subsidies for ESI and the implications for new policy options.

The three largest federal income-support programs for low-income households are the Earned Income Tax Credit (EITC), food stamps, and Temporary Assistance to Needy Families (TANF). While TANF and food stamps are traditional spending programs, the EITC provides more than $30 billion each year through the tax code. The EITC appears to be quite successful in reaching low-income families with children. The figure below shows that from 1990 to 1999, between 80 and 86 percent of eligible households with children claimed the EITC. Participation rates for TANF and food stamps have not remained as stable.

Families with children in poverty receive net subsidies from the federal income and payroll tax system, but that has not always been the case. In the 1970s, income tax filing thresholds were low, and even families in poverty who owed no income tax faced substantial payroll taxes. Congress enacted a refundable Earned Income Tax Credit (EITC) in 1975 to offset some payroll taxes for low-income workers. In 1986, 1990, 1993, and 2001, lawmakers greatly expanded the credit for families and moderately for childless workers. The combination of EITC changes, increases in exemptions and deductions, indexation of tax brackets, and expansion of the Child Tax Credit (CTC) has substantially improved the tax treatment of poor families with children.

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