Final answer:
The effective tax rate is calculated by dividing the total tax liability by the economic income and can be interpreted as the fraction of an individual's income that goes towards taxes. It takes into account the average corporate tax rate and any tax benefits included in a current tax year. The effective tax rate can be graphically interpreted as the slope of a line on a graph.
Step-by-step explanation:
The effective tax rate is a measure used to determine what fraction of an individual's income goes towards taxes. It is calculated by dividing the total tax liability by the economic income. For example, if someone has an income of $20,000 and pays $2,581.25 in taxes, their effective tax rate would be 12.9%.
The effective tax rate takes into account the average corporate tax rate on a company's income and any tax benefits included in a current tax year. It is important to note that the effective tax rate may differ from the marginal tax rate, which is the rate on the last dollar of income.
The effective tax rate can also be graphically interpreted as the slope of a line from the origin to a point on a graph. It is commonly used to determine the impact of taxes on different households and to analyze income inequality.