Explain the difference between marginal and average tax rates
What will be an ideal response?
Average tax rates are calculated by taking the total tax paid and dividing by the total income. In other words, the comparison is between two dollar amounts: total tax paid and total income. On the other hand, the marginal tax rate is a comparison of the difference in tax paid relative to the change in income which causes that differential. In other words, it is a comparison of two incremental amounts or differences. Marginal tax rates are calculated by taking the change in the tax paid and dividing by the associated change in income.
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A) $1.060 B) $0.943 C) $1.943 D) None of the above.
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