Final answer:
The average tax rate of a taxpayer will never be greater than their 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.
Step-by-step explanation:
The average tax rate of a taxpayer will never be greater than their marginal tax rate. The average tax rate is the ratio of taxes paid to income, while the marginal tax rate is the rate paid on an additional dollar of income. The marginal tax rate is typically higher than the average tax rate because it represents the tax rate charged on the last dollar of income.
For example, let's consider a single taxpayer with an income of $35,000 per year. Suppose the tax system has income tax rates of 10% for income from $0 to $9,075, 15% for income from $9,075 to $36,900, and 25% for income above $36,900. In this scenario, the taxpayer's marginal tax rate is 15% because their income falls within the 15% tax bracket. However, their average tax rate would be lower than 15% because not all of their income is taxed at the 15% rate.