Marginal tax rates and why they matter

Lower tax rates are an important incentive.

One of the reasons the Trump tax cuts of 2017 were so successful is that they reduced marginal tax rates — and it’s why we don’t want to let them expire at the end of the year. Marginal tax rates are one of the most important factors influencing work, savings, and investment decisions.

The concept is simple: The less tax you pay on what you earn, the more likely you are to work, save, and invest. This creates a powerful cycle of economic growth that benefits everyone, from workers and families to local communities and businesses.

What is a marginal tax rate?

A marginal tax rate refers to the percentage of tax applied to your next dollar of income.

The United States uses a progressive tax system, meaning as your income increases, so does the rate at which additional earnings are taxed. For instance:

• The first portion of your income is taxed at the lowest rate (10%).
• Income falling into higher brackets is taxed at progressively higher rates, up to 37% for top earners.

Importantly, only the income within each bracket is taxed at that specific rate. So, if you earn $50,000, the first $11,600 may be taxed at 10%, the next portion — between $11,601 and $47,150 — at 12%, and any amount above $47,150 at 22%. You’re only paying 22% on earnings above $47,150 — not on your entire income.

The downside of higher marginal tax rates

While progressive tax systems aim to distribute tax burdens fairly, higher marginal tax rates can unintentionally discourage productivity.

Why?

Because as you earn more, you take home less of each additional dollar after taxes. This can make working extra hours or pursuing raises less appealing.

For example, if a worker hits a tax bracket where each additional dollar is taxed at 22%, they may decide that the reduced take-home pay isn’t worth the extra effort. The same principle applies to saving and investing — higher taxes on interest, dividends, or capital gains discourage people and businesses from taking risks, which can limit economic growth.

The benefits of keeping marginal tax rates low

Lower marginal tax rates create a culture where hard work, saving, and innovation are rewarded. They make it more worthwhile for workers to take on additional responsibilities, entrepreneurs to expand their businesses, and individuals to save and invest in the economy.

The 2017 Tax Cuts and Jobs Act demonstrated the tangible benefits of reducing marginal tax rates. After the law’s passage, the economy experienced significant growth:

• 7 million new jobs were created.
• Household income rose by nearly $6,000.
• Wages increased fastest for low-income and blue-collar workers.
• The bottom 50% of households saw a 40% increase in net worth.
• Unemployment rates for minority groups hit record lows.

These numbers highlight how well-designed tax policies can drive widespread economic benefits.

A path forward

To keep empowering individuals and strengthening the economy, we need to protect policies that encourage growth. Low marginal tax rates fuel opportunities for workers, businesses, and entire communities.

By renewing tax policies like the 2017 TCJA, we can ensure a future where everyone has a chance to thrive.

But your representatives in Washington need to hear from you.

Let them know that you demand lower marginal tax rates!