Which statement is correct with respect to marginal and average tax rates under a progressive tax structure?
A)At very high levels of taxable income,a taxpayer's marginal and average tax rates will be the same.
B)At very low levels of taxable income,a taxpayer's marginal and average tax rates will be the same.
C)For most taxpayers,the average tax rate is larger than the marginal tax rate.
D)Generalizations cannot be made.The question can only be answered with reference to the tax situation of a specific taxpayer.

Question

Quizplus · Accepted Answer

Under a progressive tax structure, as income increases, the tax rate applied to the next dollar of income (marginal tax rate) also increases. At very low levels of taxable income, the taxpayer is likely in the lowest tax bracket, so their marginal and average tax rates are the same because all their income is taxed at the same rate. As income increases and enters higher tax brackets, the average tax rate (total tax divided by total income) becomes lower than the marginal tax rate because the average rate is a blend of the lower rates applied to the initial income and the higher rates applied to the last dollars earned.

Which Statement Is Correct with Respect to Marginal and Average