Final answer:
Supply-siders analyze the effects of changes in the marginal tax rate on the economy, as this affects incentives to earn and can impact labor supply and economic activity.
Step-by-step explanation:
Supply-side economics emphasizes that marginal tax rates are the critical component when analyzing the effects of taxes on the economy. The marginal tax rate is the rate you would pay on an extra dollar of income which might affect incentives to earn more and therefore work more. Lower income taxes can increase the incentive to work by increasing the after-tax wage, impacting the labor supply. Supply-siders argue that cutting marginal tax rates enhance economic activity by encouraging higher income households to invest and work more, thereby potentially sparking economic growth.
Changes in marginal tax rates have different impacts on individuals with different levels of income, which can also affect the distribution of income after taxes. In a system where marginal tax rates increase with income, higher-income households pay a larger fraction of their income in taxes, leading to a more equal distribution of income after taxes relative to before taxes are paid.