What are marginal income tax rates and why was President Bush so adamant about lowering marginal tax rates in the 2001 tax cut?
A marginal income tax rate is the tax rate levied on a taxpayer’s last dollar of taxable income. This last dollar of income is often called the marginal dollar of income. For example, if an individual earns $25,001 in taxable income, the tax rate imposed on the marginal dollar of income that brings him or her from $25,000 to $25,001 is the marginal tax rate. The federal income tax employs a progressive tax rate schedule, meaning that as an individual’s income increases, at certain distinct income levels there is a jump in the marginal tax rate facing the marginal dollar of income. The tax rates are levied on ranges of income, so, for example, an individual earning $6000 faces a 10 percent rate on the full amount, so her tax liability is $600. There is a jump in tax rates as income levels rise about $6,000, which means that if she earns $6,001, then she will owe 15 percent on the last dollar of income. This doesn’t mean she owes $900.15 in tax (15 percent of $6,001). The 15 percent rate
