The marginal tax rate is the tax rate applied to the last dollar of income within the progressive tax system. Income is divided into segments, each taxed at a different rate, but only the highest portion of income reflects the taxpayer's marginal rate. For a person earning $35,000, the marginal rate would be 15% as it's the rate for the highest income bracket they fall into without exceeding it.
The question asks us to clarify how the marginal tax rate works. The marginal tax rate refers to the rate of tax that is applied to the last portion of a taxpayer's income.
Using the progressive tax system in the United States, as an individual's income increases, it is taxed at higher rates. Nevertheless, it is key to understand that income is taxed in segments, according to different tax brackets.
For example, if a taxpayer earns $35,000 per year, here's how the marginal tax rate applies:
From $0 to $9,075, income is taxed at 10%.
From $9,075 to $36,900, the next segment of income is taxed at 15%.
Since the taxpayer's income does not exceed $36,900, income beyond this threshold would be taxed at 25%, but this does not apply in this case.
Therefore, the person's marginal tax rate is 15%, because that is the rate applied to the highest portion of their income.
It is important to note that changes such as the Tax Cuts and Jobs Act of 2017 can alter tax brackets and rates, but the underlying principle of marginal tax rates remains constant. In progressive tax systems, the highest earners often pay a larger share of the overall tax burden, as evidenced by statistics from organizations like the Pew Research Center.