Question 1

What is the difference between marginal and effective tax rates?

Accepted Answer

Your marginal tax rate is the percentage of tax applied to your last dollar of income (the bracket you fall into). Your effective tax rate is the actual percentage of your total income paid in tax (total tax divided by total income).

Question 2

How does a progressive tax system work?

Accepted Answer

In a progressive tax system, tax rates increase as your income increases. Different tax rates apply to different slices of your income rather than your entire income being taxed at a single rate.