Marginal utility says that—most of the time–the utility of one more of an item to the owner is less than or equal to the utility of each item they already possess. (The exception would be where you need multiple items to do anything useful, but this is generally treated as a different kind of good rather than another of the same.) The concept of marginal utility says nothing about the relative utility of the same amount of money to different people. Utility is subjective, and there is no coherent concept of utility which applies across multiple individuals. It makes zero sense to say that some set amount of money is worth objectively more or less to different individuals based solely on how much they already own, much less on their earnings for a single year.

> To a person who earns $[X]/yr…

And here we have another issue: the assumption that earning some amount in one year—which is all the tax rules consider—is equivalent to earning that amount every year. Receiving ten years worth of income as a lump sum of $1M up front vs. $100k each year should not affect your tax rate, but in practice it does, which has various perverse implications. The law is biased in favor of regular, even income (W-2s), and against situations where you may earn a lot in one year and very little in others (e.g. running a small business).