Business, Legal & Accounting Glossary
The marginal tax rate is the rate of tax applicable to each additional dollar of income. In other terms, the marginal tax rate indicates the changes in tax rates as they relate to the changes in taxable income. The marginal tax rate can be expressed mathematically in the following way: marginal tax rate = Δ(tax owed)/Δ(taxable income). Thus, for example, a marginal tax rate of zero is indicative of a flat taxation model. When referring to a marginal tax rate, economists typically consider a combination of federal, state, and local taxes. As such, the marginal tax rate applies to all tax brackets. An increased marginal tax rate is often debated. Critics of progressive marginal tax rate argue that it leads to an infinitely augmenting tax rate and discourages investment incentives.
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This glossary post was last updated: 7th February, 2020 | 2 Views.