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Encyclopedia > Marginal tax rate

In the tax system and in economics, the marginal tax rate refers to the increase in one's tax obligation as one's taxable income rises: A tax is a compulsory charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... Economics (from the Greek οίκος [oikos], house, and νομος [nomos], rule, hence household management) is a social science that studies the production, distribution, trade and consumption of goods and services. ...

marginal tax rate = Δ(tax obligation)/Δ(taxable income)

This can be measured either by looking at the published tax tables (to get the official marginal tax rate) or by looking at actual practice, i.e., how an increase in income raises tax obligations either within "brackets" or between them, including all types of taxes or just some of them. It may be calculated noting how tax changes with changes in pre-tax income, rather than with taxable income.

Marginal tax rates do not fully describe the impact of taxation. A flat rate poll tax has marginal rate of zero, while a discontinuity in tax paid can lead to positively or negatively infinite marginal rates at particular points. A poll tax, head tax, soul tax, or capitation is a tax of a uniform, fixed amount per individual (as opposed to a percentage of income). ...

Where social security and other benefits are related to income, the combined tax and benefit effect can also be taken into account giving a result sometimes described as the marginal effective tax rate or the marginal deduction rate. If the marginal deduction rate exceeds 100%, then an increase in gross income leads to a decrease in disposable income, discouraging attempts to increase income; when this occurs for low income individuals, it is known as the "poverty trap". For specific national programs, see Social Security (United States), National insurance (UK), Social Security (Sweden) Social security mainly refers to a field of social welfare concerned with social protection, or protection against socially recognized needs, including poverty, old age, disability, unemployment, families with children and others. ... The welfare trap is a name for the phenomenon by which taxation and welfare systems jointly contribute to keep people on social insurance. ...

  Results from FactBites:
Marginal Tax Rate Calculator - Financial Calculators from Dinkytown.net (1376 words)
This calculator helps you estimate your average tax rate, your current tax bracket, and your marginal tax rate for the 2007 tax year.
Your marginal tax rate is useful when calculating taxes on additional income, such as the taxes on a windfall or a year end bonus.
Taxpayers in the 10% or 15% bracket pay a 5% rate of tax on dividends paid between January 1, 2003, and December 31, 2007, and zero percent in 2008.
Marginal tax rate - Wikipedia, the free encyclopedia (508 words)
An individual's tax bracket is the range of income for which a given marginal tax rate applies.
The marginal tax rate may increase or decrease as income increases, although in most countries the tax rate is (in principle) progressive: the income tax rate increases with income to some maximum rate.
Marginal tax rate generally refers only to income tax, and hence often ignores sales or consumption taxes; non-taxable forms of income (or different tax rates imposed on different types of income); tax deductions or other tax reductions possible; and various payroll taxes that may be paid by the individual or the employer.
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