The ultimate economic burden of a tax is best captured by:
A)the marginal tax rate.
B)the effective tax rate.
C)the average tax rate.
D)the proportional tax rate.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

The effective tax rate reflects the actual percentage of income that is paid in taxes after accounting for all deductions, exemptions, and credits. It takes into account the full impact of the tax on a taxpayer's income and is therefore the most accurate measure of the economic burden of a tax. The marginal tax rate only applies to the income that falls within a specific tax bracket, and the average tax rate is simply the total tax paid divided by total income, which can be misleading if there are significant differences in income levels among taxpayers. The proportional tax rate is a flat tax rate that does not vary based on income and is not necessarily the same as the effective tax rate. Therefore, B is the best choice.

The Ultimate Economic Burden of a Tax Is Best Captured