Marginal vs. Lump-Sum Tax Cuts

James Miller points out that the most productive tax cuts will reduce marginal rates.

Giving workers a lump-sum payment does nothing to reduce marginal tax rates because everyone would still pay the same amount in taxes on their next dollar earned. Consequently, lump-sum payments don't reduce the negative economic effects of taxation. In contrast, reducing the Social Security tax increases most workers' after-tax take home pay for their next hour worked.

Miller also discusses the problem of reducing marginal tax rates for low-income taxpayers.

Government subsidies to the poor often decrease as income rises. Consequently, reducing subsidy penalties for the employed poor reduces marginal tax rates for the non-working poor.

Discussion Question. With subsidy programs, such as food stamps, the tendency is to phase out the subsidy quickly to avoid the expense of paying benefits to middle-class recipients. What does this do to marginal tax rates?