Marginal tax rates apply only to the last dollars earned, not all income

Evidence

As a married taxpayer filing a joint return, he would subtract the personal exemption, which for 1927 was 3,500, and have taxable income of 22,776.72 (11,500). That would result in a 370 tax bill—roughly 5,300 in today's dollars. Author's calculation as follows: 4,000 × 1.5% = 60; 4,000 × 3.0% = 120; 2,000 × 5.0% = 100; and 1,500 × 6.0% = 90 = 370.00. The progressive tax system is designed to tax income at different rates as income increases. So here, the taxpayer’s first taxable dollars are taxed at 1.5%, and their last dollars are taxed at 6%. The taxpayer’s marginal tax rate here is 6%. — Dorothy A. Brown, The Whiteness of Wealth, 620

Categorization

• DEFINE: Clarifies marginal tax rate vs. effective rate — foundational for any tax-mechanism explanation.