   Chapter 11.4, Problem 1ST

Chapter
Section
Textbook Problem

Give an arithmetic example to illustrate the difference between the marginal and average tax rates.

To determine

Identify the difference between the marginal and average tax rates using an arithmetic example.

Explanation

The marginal tax rate can be calculated using the following formula:

Marginal tax rate=ΔTax paymentΔTaxable income        (1)

The average tax rate can be calculated using the following formula:

Average tax rate=Tax paymentTaxable income        (2)

Suppose the tax payment increases from $10,000 to$10,390 when the taxable income rises from $45,000 to$46,000, then, the marginal rate of tax can be calculated using Equation-1 as follows:

Marginal tax rate=$10,390$10,<

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