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Marginal Tax Rate

The marginal rate is the rate of taxation on the last dollar earned. In the United States, income taxes are {progressive}, meaning that as income increases, tax rates increase. Under 2006 law, for example, the rate on taxable income up to $7,500 is 10 percent, and the rate on taxable income between $7,500 and $30,650 is 15 percent. A person with $20,000 in taxable income would thus pay 10 percent on the first $7,500 of income and 15 percent on the remaining $12,500. The person’s marginal tax rate (or the highest rate paid) would be 15 percent.