Final answer:
The correct answer is that the tax on the last dollar of income is known as the marginal tax rate. It refers to the tax rate that applies to each additional dollar of income within a specific tax bracket in a progressive tax system.
Step-by-step explanation:
The tax on the last dollar of income is referred to as the marginal tax rate. This term is used in the context of progressive tax systems such as that of the United States, where individuals with higher incomes are subjected to higher tax rates on their additional income. For instance, if a single taxpayer earns $35,000 per year and the tax bracket system is structured so that income from $0 to $9,075 is taxed at 10%, and income from $9,075 to $36,900 is taxed at 15%, then this person's marginal tax rate is 15%. This is because the marginal tax rate is applied to each additional dollar of income earned within a specific tax bracket. In contrast, the average tax rate is the ratio of total taxes paid to total income, which could be less than the marginal rate because it averages the rates paid on all income, not just the last dollar earned.