A company pays taxes of 25% on their first $25,000 of pretax income, and 40% on any taxable income in excess of $25,000.The marginal tax rate, if current pretax income is $30,000, is _____.

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The company's first $25,000 of pretax income is taxed at 25%, leaving $5,000 of taxable income. This $5,000 is taxed at 40%, resulting in $2,000 of tax. The marginal tax rate is the rate at which the next dollar of income will be taxed. Since the current pretax income is $30,000, the next dollar of income would be taxed at the higher 40% tax rate. Therefore, the marginal tax rate is 40%.

A Company Pays Taxes of 25% on Their First $25,000