Contemporary Economics: An Applications Approach By Robert J. Carbaugh 2nd Edition

1. Contemporary Economics:An Applications ApproachBy Robert J. Carbaugh2nd Edition Chapter 9: The Mixed Economy of the United States

2. The Mixed Economy: Households Functional distribution of income, 2000 Source: Federal Reserve Bulletin, June 2001 Carbaugh, Chap. 9

3. The Mixed Economy: Households Personal distribution of income Money income before taxes Lowest Second Middle Fourth Top Year 20 percent 20 percent 20 percent 20 percent 20 percent 1935-6 4.1% 9.2% 14.1% 20.9% 51.7% 1950 4.5 12.0 17.4 23.4 42.7 1960 4.8 12.2 17.8 24.0 41.3 1970 5.4 12.2 17.6 23.8 40.9 1980 5.2 11.5 17.5 24.3 41.5 1985 4.7 10.9 16.8 24.1 43.5 1990 4.6 10.8 16.6 23.8 44.3 1999 3.6 8.9 14.9 23.2 49.4 Source: US Dept. of Commerce, Bureau of the Census Carbaugh, Chap. 9

4. The Mixed Economy: Households Households as spenders and savers, 1999 Amount Percent(billions)of total Disposition of household income Personal consumption expenditures $6,269 83% Personal taxes 1,152 15 Personal savings 148 2 7,569 100 Composition of personal consumption Expenditures Durable goods $762 12% Non-durable goods 1,854 30 Services 3,662 58 6,269 100 Source: Economic Report of the President, 2001 Carbaugh, Chap. 9

5. The Mixed Economy: Business US business firms in 1998 Number of Business firms (mill.) receipts (bill.) Form of business Number percent Dollars percent Proprietorships 16.9 72% $843 5% Partnerships 1.7 7% 1,042 6% Corporations 4.8 21% 14,890 89% TOTAL 23.4 100% 16,775 100% Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2000 Carbaugh, Chap. 9

6. The Mixed Economy: Government Growth of total government outlays, 1960-2000 Source: Economic Report of the President, various issues Carbaugh, Chap. 9

7. Government Finance Federal government expenditures and receipts, 2000 Federal Expenditures Federal Receipts International affairs 1% Other 13% SocialSecurity, Medicare & other retirement taxes 32% Social security, Medicare, & other retirement 48% Personal income taxes 50% Health 9% Net interest on the debt 13% National defense 16% Corporate income taxes 10% Excise, Customs, Estate, Gift and misc. taxes 8% Source: Economic Report of the President, 2001 Carbaugh, Chap. 9

8. Government Finance State and local receipts and expenditures, 1998 Receipts Expenditures Sales and Excise taxes 20% Other 29% Other 44% Education 33% Individual income tax 12% Property tax 17% Public welfare 16% Revenue from the Federal Government 19% Corporate income tax 3% Highways 7% Source: Economic Report of the President, 2001 Carbaugh, Chap. 9

9. Taxation Taxes and tax rates Total tax receipts as a percent of domestic output, 1999 Nation Average tax rate Sweden 63.0% France 50.9 Italy 46.8 Germany 44.8 Canada 43.4 United Kingdom 40.6 United States 34.4 Japan 30.8 Singapore 28.1 Hong Kong 16.1 Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2000 Carbaugh, Chap. 9

10. Taxation Progressive, proportional & regressive taxes Total Total Average Marginal income taxes due tax rate tax rate Progressive tax $0 $0 - - 100 5 5% 5% 200 20 10% 15% 300 45 15% 25% Regressive tax $0 $0 - - 100 30 30% 30% 200 50 25% 20% 300 60 20% 10% Proportional tax $0 $0 - - 100 10 10% 10% 200 20 10% 10% 300 30 10% 10% * In a progressive tax system, the average tax rate and marginal tax rate rise as income increases. * In a regressive tax system, the average tax rate and marginal tax rate fall as income increases. * In a proportional tax system, the average tax rate and marginal tax rate remain the same as income increases. Carbaugh, Chap. 9

11. Taxation Federal income tax rates for a single taxpayer, 2000 Tax bracket Taxes Average Marginal Over Up to due* tax rate tax rate $0 26,250 $3,938 15% 15% 26,250 63,550 14,382 23% 28% 63,550 132,600 35,787 27% 31% 132,600 288,350 91,857 32% 36% 288,350 and over 39.6% * Computed at the top of the four lowest taxable Income brackets. Source: Internal Revenue Service, 2000 Tax Rate Schedules Carbaugh, Chap. 9

12. Taxation Share of federal personal income tax paid by various income groups, 2000 Percentiles ranked Adjusted gross income Percentage of federal adjusted gross income threshold on percentiles personal income tax paid Top 1% $269,496 35% Top 5% 114,729 54 Top 10% 83,220 65 Top 25% 50,607 83 Top 50% 25,491 96 Bottom 50% less than 25,491 4 Source: US Congress, Joint Economic Committee, October 2000 Carbaugh, Chap. 9

13. Taxation Size of government in selected nations, 1999 Government expenditures as a percentage Nation of domestic output Sweden 60.8% Denmark 55.1 France 54.3 Netherlands 47.2 Germany 46.9 Canada 42.1 United Kingdom 40.2 Japan 36.9 Australia 32.9 United States 32.8 South Korea 19.4 Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2000 Carbaugh, Chap. 9

14. Taxation Progressive vs. flat-rate income tax Tax rate 39.6% Progressive tax 36% 31% 28% 20% Flat-rate tax 15% 23,350 56,550 117,950 256,500 Carbaugh, Chap. 9

15. Taxation Taxes on goods & services as a share of total tax revenue Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2000 Carbaugh, Chap. 9