Marginal tax rate can be defined as the amount of tax paid on an additional dollar of income of a person or a business entity. The marginal tax rate of the individual or a business entity will increase with the increase in their income or revenue generated. This method of income tax is aimed to tax the individuals fairly on the basis of the fair and just thinking that the individual with high income will be charged high income tax where as individual with low income will be charged as low income tax.
In order to derive income tax from the people on the basis of marginal tax rate the individuals or the people within a country or an economy are divided into different tax brackets or sections. The brackets can also be called as tax ranges and decides the rate at which the individual will be charged with the income tax on their taxable income. As the income increases the tax bracket or the tax rate also increases this means that you are charged with the high tax rate with each dollar increase in your income. Most of the people and the business community think that it is the most just and equitable method of charging income tax from the individuals however other say this method tends to discourage the business investment by the individuals by removing the incentive to work harder in order to earn more.
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