Which income dollar is taxed most heavily, including implicit taxation, in USA?

Question

Income is often taxed implicitly by disqualifying deduction or government assistance. For example, if the recent proposal of "free tuition for kids of families making under \$125k" would pass the \$125,001-st dollar earned by the parents of 2 kids attending \$25k/year college would effectively reduce their after-tuition income by \$49,999, or 4,999,900% of that dollar.

Thus the question: which income dollar is currently taxed most heavily in USA, including both explicit federal+ssi+state taxation and implicit taxation by disqualifying deductions and assistance programs? How often it exceeds 100%?

EDIT:

famsy's answer convinces me that the question is too complicated. Therefore I'd like to amend it as follows:

Could you list realistic situations in which marginal income is taxed much more than 100%?

famsy mentioned hard cutoff in various welfare/HUD/etc benefits and a situation when a small marginal income led to \$30k of lost benefits. Assuming that the cutoff was set at the same amount that leads to implicit taxation of 3,000,000% on the disqualifying dollar.

Any other examples of that?

Answer 1

Unfortunately this question is exceptionally complex and depends on factors such has how many children the person has, which state they live in, and which services/opportunities they are taking advantage of. I read a paper a while back (having a hard time finding it) in which the authors attempted to compute the effective tax rate for all incomes after the various deductions, benefits, alternative minimum tax, and other considerations. The rate was very nonlinear with many peaks and valleys. It was not particularly increasing with income. This is further complicated by state taxes and the fact that states administer many welfare benefits using different criteria from each other.

Most taxes scale in and benefits scale out as income increases. I believe the most heavily taxed dollar would be the one that takes you from qualifying for one of the various welfare benefits to not. Many welfare programs have hard cutoffs. This will vary from state to state, though, and may depend on other factors like what your savings are and how your social worker is feeling that day.

When I was in graduate school I had a stipend of about \$22K and my friend got slightly less. He qualified for food stamps, WIC, and medicaid, and HUD paid his rent and utilities. He received about \$30K a year in government benefits (not counting the value of medicaid) on top of his stipend. I was just over the income line got none of these (well, my wife got WIC when she was pregnant). So the small difference in our income cost me many thousands of dollars--he lived much, much better than I did. It was more than an income difference, though. HUD paid his rent because he had found a cheaper apartment than I was able to and they had a rent-per-square-foot cutoff. Later I tried restructuring my life in order to qualify for some of these, but the state had changed some of its rules (you had to have less than $2,000 in your bank accounts to qualify).

This is also complicated by the fact that the rules are not applied consistently. For example, some of the social workers deciding which benefits he got did not count his stipend as income, while all the ones I talked to counted mine.

Your tax rate and marginal tax rate depend on many elements of who you are, where you live, how you file taxes, what consumption choices you make, and luck.