Question

If the marginal tax rate is 20% under a proportional tax rate structure, the average tax rate:

a) should be 20%.
b) should be above 20%.
c) should be below 20%.
d) cannot be determined.

Answer 1

The average tax rate cannot be determined based solely on the marginal tax rate.

Step-by-step explanation:

The average tax rate cannot be determined based solely on the marginal tax rate. The marginal tax rate is the rate paid on an additional dollar of income, while the average tax rate is the ratio of taxes paid to income. The average tax rate can be higher or lower than the marginal tax rate depending on the income level and the tax brackets. Therefore, the correct answer is d) cannot be determined.