The Effective Tax Burden of Low- and Moderate-Income California Households: A Quantitative Analysis of the Federal EITC and CalEITC

Statutory tax brackets for low- and moderate-income California households suggest a federal-plus-state marginal rate ceiling of roughly 28 percent in the income range examined here. This paper shows that the actual effective tax burden these households face is structurally different from what statutory schedules suggest: deeply negative for households with qualifying children at the bottom of the distribution, and punitive in a narrow income band where credit phase-outs concentrate. Using tax year 2023 parameters from IRS Revenue Procedure 2022-38 and the California Franchise Tax Board, the analysis computes net effective tax rates incorporating federal income tax, California income tax, employee-side payroll tax, the federal Earned Income Tax Credit, the refundable Additional Child Tax Credit, the California Earned Income Tax Credit, and the Young Child Tax Credit at \\$1,000 income increments across the \\$0–\\$75,000 range, segmented by four household types. The credit stack drives effective tax rates to −84 percent for a head-of-household filer with two children at \\$10,000 of earned income, but provides essentially no offset for childless filers at any income level. A separate cliff-effect analysis identifies a contiguous \\$26,000–\\$31,000 income band in which the layered phase-outs of federal EITC, CalEITC, and YCTC generate implicit marginal tax rates approaching 65 percent for households with qualifying children — more than double the relevant statutory ceiling, and invisible in any published bracket schedule. The central finding is that California's nominally generous credit stack achieves its anti-poverty purpose at the bottom of the income distribution but imposes a substantial work-incentive penalty in the income band where many of its recipients are concentrated. Replication code is publicly available.