TeachMeFinance.com - explain effective tax rate
effective tax rate -- The ratio of taxes paid to a given tax base. For individual income taxes,
the effective tax rate is typically expressed as the ratio of taxes to adjusted gross income. For corporate
income taxes, it is the ratio of taxes to book profits. For some purposes--such as calculating an overall
tax rate on all income sources--an effective tax rate is computed on a base that includes the untaxed
portion of Social Security benefits, interest on tax-exempt bonds , and similar items. The effective tax
rate is a useful measure because the tax code's various exemptions, credits, deductions, and tax rates
make actual ratios of taxes to income very different from statutory tax rates.
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