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Business Glossary


Business Definition for: marginal tax rate
marginal tax rate

rate paid on the last dollar of taxable income. For example, assume for married couples filing jointly that there are two tax brackets:

First $29,750 of taxable income at 15% = $ 4,462.50
Remaining $20,250 at 28% = $15,670.00

The 15% and 28% are marginal tax rates, while the average tax rate is a little over 20% ($10,132.50/$50,000).

marginal tax rate

amount of tax imposed on an additional dollar of income. In the U.S. progressive income tax system, the marginal tax rate increases as income rises. Economists believing in supply-side economics hold that this reduces the incentive to be productive and discourages business investment. In urging that marginal tax rates be cut for individuals and businesses, they argue that the resulting increased work effort and business investment would reduce stagflation .

See also flat tax
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.


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