Sarah earns $120,000 per year, and her husband, Mark, earns $40,000 per year. They live in a province where the marginal tax rates are highly progressive. Which of the following statements about their average and marginal tax rates is accurate?

Question: Sarah earns $120,000 per year, and her husband, Mark, earns $40,000 per year. They live in a province where the marginal tax rates are highly progressive. Which of the following statements about their average and marginal tax rates is accurate?

Answer options: ✅ Sarah's average tax rate will be lower than her marginal tax rate.

• Mark's average tax rate will be higher than his marginal tax rate.
• Sarah's marginal tax rate will be lower than Mark's average tax rate.
• Both Sarah's and Mark's average tax rates will be higher than their highest marginal tax bracket.

Correct answer: Sarah's average tax rate will be lower than her marginal tax rate.

Explanation: Due to progressive tax systems, initial income is taxed at lower rates before higher rates apply. Therefore, the average tax rate (total tax paid divided by total income) will always be lower than the marginal tax rate (the rate on the next dollar earned) for any income earners above the lowest bracket.