What does it indicate if a taxpayer has a significantly lower MRT compared to their ART?

When a taxpayer exhibits a significantly lower marginal tax rate (MRT) compared to their average tax rate (ART), it suggests that the individual benefits from tax deductions. This phenomenon occurs because the marginal tax rate reflects the rate of tax applied to the next dollar of income, while the average tax rate represents the total tax liability divided by total income.

If the MRT is lower than the ART, it indicates that the taxpayer may have substantial deductions that lower their taxable income, resulting in their next dollar of income being taxed at a lower rate than their overall income might otherwise suggest. These deductions can come from various sources, such as business expenses, mortgage interest, or other allowable expenses that reduce taxable income.

The other choices do not accurately reflect the situation described. High taxable income would typically lead to a higher MRT, tax rates for higher brackets are progressively structured to apply higher rates on additional income beyond certain thresholds, and an equal taxation rate would imply that the MRT and ART are the same, contradicting the premise of the question. Thus, the scenario primarily highlights the impact of tax deductions on the taxpayer’s marginal tax rate.