Which term refers to the tax rate applied to the last dollar earned?

The term that refers to the tax rate applied to the last dollar earned is known as the marginal rate of tax (MRT). This rate is significant because it illustrates how much tax is paid on additional income, providing insight into how taxation affects decisions related to working more, investing, or seeking promotions. The MRT plays a crucial role in economic analysis, especially when evaluating how tax rates can influence behavior and economic incentives.

Understanding the marginal tax rate is essential for grasping concepts such as income progression, as individuals with higher incomes may find themselves in higher tax brackets, leading to a greater percentage of their last dollar earned being taxed. This dynamic can also inform discussions on equity in taxation, as policies are often evaluated based on how they impact earners across different income levels.