Marginal Tax Rate
The marginal tax rate is the tax rate that applies to an incremental dollar of a company’s pre-tax income. It is the tax rate paid on the last dollar earned.
A company may incur a certain tax rate on income up to a certain amount. Beyond that amount the tax rate may change to the tax rate that is marginal, which then applies to incremental income earned beyond that point.
Because it applies to incremental income, this rate is the most important tax rate in business decision making.
In the U.S., the marginal tax rate increases as a company’s income increases. So the more a company earns, the higher its tax rate is. Some economists think that this discourages productivity in business.