US federal income tax is progressive by law, but which best explains why wealthy individuals can often pay far less in taxes than the top tax rate?
Answer
A
High-income earners use tax laws to their advantage to reduce their tax rates.
B
High-income earners can fight in court for the right to a reduced rate.
C
High-income earners reduce their tax rates through numerous deductions.
D
High-income earners always place their assets overseas to lower their tax rates.
Explanation
The top tax rate applies only to income within the highest tax bracket, not to all of a person’s income. Wealthy individuals may also use deductions and other legal tax provisions to reduce their taxable income or tax bill. Choice D best captures this broader use of tax laws; choice A names one example but is narrower.
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