What is the tax rate?

In many countries, the tax percentage is evaluated according to the income group. People will pay a higher percentage when they move on the income scale. This is called a progressive tax system that moves higher taxes on people with higher income. Taxation complicates a little, because the tax can increase gradually according to the holder and people do not always pay the same amount of tax on all their income. Instead, different percentage of different parts of their earnings may apply, and the tax rate, which applies to the highest earnings, is called a marginal tax rate.

Marginal tax rate can actually be defined as the amount that a person or business is taxed for the last dollar or the highest dollar. This should not be confused with the total tax rate. When people hear about raising taxes, especially for those who go beyond a certain amount of money, they may feel understandable panic. Nevertheless, these tax rates in many countries apply only to a certain amount of income and not the taxation of CT for the rest of the income. The marginal tax rate is not an average tax on total profits or earnings.

One thing that is normally misunderstood about the tax rate is that it dramatically shifts the entire income. People may think that climbing into another tax group is translated on the loss of more of their money on tax. Most do not have to understand that only a part that exceeds the current tax group is taxed at a higher rate. The total tax may be a slightly larger percentage of earnings when calculating income, but if there are tax groups, any additional percentage of the tax in higher races is based only on higher earnings.

Many people understand it better with an example. Let's say the tax rate is 30% for income between $ 200,000-250,000 in the US (USD). It increases to 35% for any income over $ 250,000. For employees who earn $ 2501, the total tax rate does not jump to 35%. Only the last dollar or money over 2$ 50,000 is taxed at 35% of the level.

Nevertheless, a higher marginal tax can be painted as dramatically a change in the income of some and certainly changes tax rates for those who earn a huge amount of money in the highest tax group. It was claimed that high marginal taxes punish those who produce more and discourage people from being better earnings, gaining more training or investing or inventing. This is a strongly discussed problem and others point out that many people are motivated for much more than profit and are not discouraged if the last few dollars they earn are a little less than the rest of the income that comes from different activities.

Some economists reject this system of percentage levels that result in the final tax rate. Instead, they propose a straight tax. The argument against this tax includes that it would often be hardship for those people who have the least, and even in this system people would still have a limit rate or percentage DAny, who paid for the highest dollar obtained. It's just that everyone would share the same marginal rate. However, many argue that even a low limit rate can be difficult for those who have a small income, and the real procedure is fairer.