Question

The concept of MARGINAL TAXATION is best exemplified by which?

A. Kirby's paid $120,000 in taxes while its main competitor paid only $80,000 in taxes
B. J's Retreat paid only $45,000 on total revenue of $570,000 last year
C. M's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes
D. B Centre paid no taxes last year due to carry forward losses
E. Blue maid $2.20 in taxes for every $10 of revenue last year

Answer 1

The concept of marginal taxation, where taxes increase due to an increase in income, is exemplified by M's Grocer, which had to pay an additional $16,000 in taxes due to an increase in sales of $52,000.

Step-by-step explanation:

The marginal tax rate is the percentage of tax that is paid on additional income. This concept is exemplified by a scenario where an entity's taxes increase specifically due to an increase in income. One of the options given that best represents the concept of marginal taxation is where M's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes. This is because the extra amount of tax paid is related to the extra, or marginal, income earned. The marginal tax rate would be the percentage of the $52,000 increase that was paid in taxes, which in this case is approximately 30.77% ($16,000 is roughly 30.77% of $52,000).

Overall, the marginal tax rate does not affect the tax applied to the income that was already being earned before the increase; it only applies to the new, additional income that falls into a higher tax bracket if applicable. This is a key feature of progressive tax systems, which the U.S. and many other countries employ.