Tax rates change behavior. They affect how much we work, save, and spend, whether we start businesses, and how we run them.
What is Marginal Tax Rate?
A marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual often rises in a progressive income code.
Consequences of High Marginal Tax Rates
You are less likely to work an hour of overtime if your marginal tax rate is high since more of your money is paid in taxes. Higher marginal tax rates ultimately make it less profitable to work, hire, or invest more, leading to slower economic growth.
Benefits of Low Marginal Tax Rate
Lower marginal tax rates allow you to keep most of what you earn, thereby making it more profitable to work, hire, and invest.
Low Marginal Tax Rate = Economic Growth
Under low marginal tax rates, people are able to keep most what of they earn, and thus are more likely to work, save, and invest.