Chapter 7 Market System Participants
 


I. Households Earn, Spend and Save

 

II. Business Population is Varied

 

III. Governments Tax, Spend, Regulate

 

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IV. Taxation Philosophies
 

V. Tax Types
 

VI. Federal Revenues-Expenditures


6/26/21        

VII. Are Taxes Fair?

 

VIII. Visual Learners

 

Test Review Notes Chapters 1-7

 

Return to Economics Internet Library      

 

Lecture Notes

 

I. Households Work, Earn and Spend


   A. Income is earned for land, labor, capital and enterprise.

 

   B. Capital, enterprise and government battle wage earners labor for shares of business revenue.

 

   C. This 2006 Income Data recently changed with the TRUMP tax CUTS,

 

   D. Consumer Demographics

 

 

 

 

 

Political Economy Stuff

 

II. Varied Business Population

     A. Businesses types 

          1. Manufacturers

          2. Transportation

          3. Wholesalers

          4. Retailers

      
5. Services

 

   

    B. Business Produce

       

 

 

 

    C. Legal Forms of Business

 

 

 

See Evolution American Workplace
 

 

 

 

 

    D. Corporate Profits Up Income Tax Paid Down

            

                          Payroll Taxes Replace Income Taxes

 

 

    E. Pass through, pay lower personal tax rate.
 

Image result for pass through income

III. Governments Spend, Tax and Regulate


   A. Why federal government spending has grown
        1. Population growth
        2. War and defense requirements
        3. Urbanization
        4. Environmental concerns
        5. Inflation
        6. Transfer payments
            a. Social Security
            b. Medicare and Medicaid
            c. Social programs for the needy such as Aid to Families
                with Dependent Children
            d. Mid-1960's social programs were  3% of national output,
                today they are 12% of output
         7. Terrorism

 

   B. Federal Government Spending
          1. Income security
          2. Defense (military preparedness)
          3. Interest on public debt
          4 . Discretionary programs

 

   C. Federal Government Receipts


       1. Personal income taxes
                a. Marginal rate is the rate paid on additional or incremental income.
                    1 Mathematically it is the increase in taxes paid divided by the
                       increase in income. 
                    2 With a progressive tax system, each higher tax bracket
                       (grouping) has a higher rate on the income in the higher bracket. 
                b. Average tax rate is the taxes paid divided by total taxable income. 
                    1 Calculating the average tax rate and amount paid by a 2000 single   
                    2 How the recent tax cut affected the average tax rate and amount
                      paid by a single person for 2003.
                    3 The U.S. federal income tax rate peaked at 88% in 1942-43
                       Country Tax Rates. Note: The U.S. pays less than half the
                       medical costs while most industrial countries pay most of it.
                   4
Wealth Tax Economics

       2. Payroll Taxes  a. social security and Medicare

                 a. both employer and employee pay)  
                 b. unemployment taxes (just employer pays)
                 c. average tax up dramatically last few decades

       3. Corporate Income Taxes
                 a. Corporations also paying less taxes
                 b. Corporate tax dodgers/sorry state of corp. taxes
       4. Excise Taxes
are a sales tax on items such as jewelry,
                 tobacco, and liquor. Taxes on Producers ACDC Video

       5. Licenses and Fees

       6. Is border adjustment good tax policy?
         a. Economist explains proposed US border-adjusted corporate tax
         b. Understanding the House GOP’s Border Adjustment 2/15/17

 

 

 

       See Who Owns US Businesses and How Much Taxes Do They Pay
                     How the IRS Was Gutted affected revenue
                    Wealth Tax Economics

 

 

 

 

More Tax Data

 

 

 

The drop in corporate total taxes from 5.5% to 4.0% was not small.
In 2017, it was $300,000,000,000

 

     D. Government Spends More Than It Collects

 

 

 

 

 

 

 

     E. Much is Required by Existing Law

 

 

 

Source:
The Day Mandatory Spending By The 20US Government

 

 

 

    

   

 F. State and local government
 
      
1. All have mandatory balanced budget laws making the accumulation of debt difficult.   

 

 

 

 

 

 

            2. Property Taxes are differ from state to state

 

     

What the 2018 elections mean for state and local spending

 

 

 

 

 

 

Property Tax Per Capita 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

     G. Foreign Nations Tax Stuff

 

 

 

 

 

  

Chart Source

 

 

 

 

 

 

Source

 

 

IV. Taxation Philosophies
        A. Ability to pay
           1. Those with the ability income or wealth pay more.
           2. Examples
               a. Income tax
               b. Sales tax
               c. Estate taxes
       B. Benefit Received User Taxes
           1. Those deriving a benefit from 
government activity pay
           2. Examples
              a. Gasoline taxes used for roads.
              b. Social security taxes are used to provide retirement and other benefits for participants.
       C.
Pigovian tax system taxes market activity that generates negative externalities
       D. Readings  
           1. It's the Inequality Stupid 02/04/11 from Mother Jones
           2. Taxing the rich 4/11/11, NYT
 
           3.
Who pays Taxes in the USA? from the Big Pictures
 

Unit IV Review  Ability to pay and benefit received are taxing philosophies

 

 

 V. Tax Rate Types
        A. Progressive
            1. Tax rate increases as income increases
            2. Tax rate decreases as income decreases
            3. Those earning higher income pay a higher average tax rate.
            4. Example: Federal Income Tax                
                Note:
Moving into a higher tax bracket does not result in your paying a
                higher rate on lower bracket earnings.
            5. How progressive is U.S. Federal Tax System?
                by Tom Piketty and Emmanuel Saez
            6. Merely Affluent vs. Truly Rich explores the change in top bracket taxes.
                NYT, Nov 2, 2010
            7. Policy Makers Often Overstate the Marginal Tax Rate 7/22/14
        B. Proportional
            1. Tax rate as percentage stays the same.
            2. Examples: Social Security taxes are proportional up to the maximum income
                level of about $76,200 because both employer and employee pay a constant
                rate of about 8%, but then the tax is regressive as the rate drops to zero

 

 

 

 


       

 

       C. Regressive 
            1. Amount paid divided by income drops as income increases.
            2. Happens one of two ways
                a. Rate drops as income increases (FICA after about $76,200 in 2000) 
                b. Amount of tax is constant so at higher incomes, the effective tax rate
                    is lower (excise taxes on cigarettes, liquor, etc.)

 

Very-Rich Top 1% of Income Going Up
Their Taxes Down


 

 

     D. Passing Tax Incidence 
          1.Passing the burden of taxes onto others (consumers ultimately pay)
          2. Businesses and professionals try to do this
          3. The consumer bears most of the tax burden in a market economy
          4. Social Security and the Ghost of Ronald Reagan

     E. Taxing the Rich

 

     F.       "The “tax wedge”, the difference between total labor costs to the employer
                and employees’ take-home pay
, rose by 0.2 percentage points to 35.9% in 2013.
                Of the 34 mostly rich countries in the OECD, 25 reported a rise in the tax burden in
                the past three years. The largest increase in the tax wedge was in Portugal.
                America’s wedge also grew as reductions in employees’ Social Security contributions
                expired. Overall, there has been little change in taxation for single workers, which in
                all OECD countries except Mexico and Chile is higher than it is for those with families.
                Belgium’s tax wedge remains the biggest, at 55.8%; that is more than double the
                figure in Mexico and New Zealand—and eight times that in Chile."  economist.com/

 

 

     G. Effect Rates

     

         

 

 

 

       H.   Average Tax Rate from Wiki its taxes paid/ taxable income

 

    H. The-global-cost-of-tax-avoidance

        where-shadow-economies-are-well-established/

 

            IMF reporting that around $600 billion is lost due to profit shifting every year

 

Tax Rates Have Gone Down.

 

 

Some Want Taxes the Wealthy.

 

 

 

 

Some Sat Tax Where the Money Is!

 

 The Math Problem That Could Sink the Bernie/AOC Agenda

 

 

 

 

 

 

See insufficient funding

 

 

 

Very-Rich Top 1% of Income
 Going Up Their Taxes Down


 

Payroll Taxes are Very Regressive

 

One important point is people with low earnings die early then the wealthy
so regressive payroll taxes hits then severely. 
mother jones.com

 

 

 

 

 

 

C

 

 

 

 

the myth-that-the-estate-tax-threatens-small-farms

 

 

 

 

 

 

VI. Federal Revenues and Expenditures
      
  A. Reported by IRS in form 1040 after the Tax Rates Schedules.
       B. Income

Total 2016 Taxes by Type

 

  Type -yr 2016 +yr  
  Total Direct Revenue $6.7 trillion  
  Income Taxes $2.4 trillion  
  Social Insurance Taxes $1.8 trillion  
  Ad valorem Taxes $1.4 trillion  
  Fees and Charges $0.5 trillion  
  Business and Other Revenue $0.5 trillion  
    Revenue: guesstimated2  

Click chart for table of Revenue
or click:
2014 2015 2016 2017 2018

Note:
1. Federal revenue after 2015 is budgeted.
2. State revenue after 2014 and local revenue after 2013 are “
guesstimated” by projecting the latest change in reported revenue forward to future years

Data Sources:
GDP, GO: GDP, GO Sources
Federal: Fed. Budget: Hist. Tables 2.1, 2.4, 2.5, 7.1
State and Local: State and Local Gov. Finances
'Guesstimated' by projecting the latest change in reported revenue forward to future years

 

 

 

Federal Spending Up   blogs.wsj.

 

 

 

 

Taxes Flat

 

 

   

         C. Outlays

 

Because Tax Revenues have changed little,
4% came from Treasury/FED

 

1999 2002 2005 2008
  Social security, Medicare, and other retirement 35% 38% 37% 37%
  National defense in 1999 (15%) , veterans benefits and services (2%), and foreign affairs (1%) 18% 20% 24% 24%
  Social programs: in 1999, 12% for Medicaid, food stamps, temporary assistance for needy families, supplemental security income  and related programs and 6% for health research and public health programs, unemployment compensation, assisted housing, and social services   17% 21% 20% 20%
  Net interest on the debt 12% 8% 7% 8%
  Physical, human and community development (agriculture, natural resources, environment, transportation, aid to elementary and secondary education and direct assistance to college students, job training, deposit insurance, commerce and housing credits, community development, space, energy, and general science) 9% 10% 10% 9%
  Surplus to pay down debt 7% None None None
  Law enforcement and general government 

 

2%

3%

2%

2%

 
    D. Tax Expenditures is a kind of spending in that
          it is revenue not collected.

 

 

pewresearch.org/fact-tank/2016/04/06/the-biggest-u-s-tax-breaks/

 

 

VII. Are Taxes Fair?
     
A.
Who Pays the Tax?
        B.  Unit VII. Review In a human population fairness can not be agreed upon.
       
C. US High Earners Earn More, Pay Less

 

 

 

People Are Paying Less 
Income and Capital Gains Taxes

 

 

 

       D. Comparing Regressive Payroll Tax US Has Low Safety Net

 

 

Source

 

 

Follow the Money

 

 

Source

 

Partial Reversal of Bush II Tax Cuts 1/2/12  from WSJ

 

 

 

 

 

Some Couldn't Afford Safety Net

 

by 2018 Many Questioned
Liberal Progressive Order
 

 

 

Additional Reading:  
    
A. Democratic Capitalism vs. Capitalistic Democracy 


     B. How Tax Rates have Changed NYT, 11/29/12 

 

     C. Household Income and Tax Distribution-in 2010 5/12/13 CBO


     D. Options for taxing more to reduce the deficit  12/11/13 CBO

 

E. Great Recession Lowers Government Employment

 
 F Presidents-2015 budget in pictures 3/19/14

 
 G. U.S. tax rates the big picture 4/15/14


 H. How Much Americans Really Pay in Taxes


   I. Tax Overhaul: What the U.S. Can Learn from Other Countries Wharton 9/8/17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculating 2000 Tax Rates for a Single Filer

Taxable Income Marginal Rate Bracket Taxes Paid Average Rate
0 to 26,250 15 .15(26,250)  = 3,937.50 3,937/26,250 = .150
26,251 to 63,550 28 .28(63,550-26,250) =  10,444 (3,937 + 10,444) = 14,381/63,550 = .226
63,551 to 132,600 31 .31(132,600-63,550) = 21,405 (14,381+ 21,405) = 35,786/132,600 = .269
132,601 to 288,350 36 .36(288,350-132,600) = 56,070 (35,786 + 56,070) = 91856/ 288,350 = .319 
288, 351 and over 39.6    

 

 

Calculating 2003 Tax Rates for a Single Filer

Taxable Income Marginal Rate Bracket Taxes Paid Average Rate Calculation
Add previous bracket total to bracket this total and divide by bracket upper limit.
0 to 7,000 10 .1(7,000)  = 700 700/7,000 = .10 is average rate on $7,000.
7,001 to 28,400 15 .15(28,400-7,000) =  3,210 (700 + 3,210) = 3,910/28,400 = .138 is the average rate on 28,400.
28,401 to 68,800 25 .25(68,800-28,400) = 10,100 (3,910 + 10,100) = 14,010/68,800 = .204  is the average rate on 68,800.
68,801 to 143,500 28 .28(143,500-68,800) = 20,916 (14,010 + 20,916 = 34,926/143,500 = .243  is the average rate on 143,500.
143,501 to 311,950 33 .33(311,950-143,500) = 55,589 (34,926 + 55,589) = 90,515/ 311,950 = .290 is the average rate on 311,950.
311951 and over 35  

Economics AP Reviews from amazon.com  

 

 

   
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Chapter 7 Class Discussion Questions Table of Contents
Chapter 7Homework Questions Economics Internet Library
 
VIII. Visual Learners

 

Masters of Tax Evasion

 

 

 

Andrew Fieldhouse/EPI

Image result

 Washington-has-missed-the-real-inequality-story/

 

 

how-america-spends-money-
100-years-in-the-life-of-the-family-budget

A sea-change in household-deleveraging? 6/9/13

 

 

labor-force-participation-1950-2014

President's Proposed Discretionary Spending

Image result

 

Sorry America Your Taxes Aren't High

US 21%

 

 

 

US 32%

 

 

45%

 
 

 

 

 


Shifts in Shares of U.S. Workers across Occupations

 

 

b

 

 

The 2018 Tax Bill

 

 

 

 

 

 

 

 

 

 

The Very High Earners Earn  Very, Very, Very Very Much

 

 

 b

 

 

The 2018 Tax Bill

 

 

 

 

m

 

   

 

 

 

See

5 charts-to-help-you-better-understand-corporate-tax-reform


A Look At Corporate Tax Inversions Inside And Out

 

 

Pass Through Businesses Data and Policy

 

 

 

 

m

 

 

 

 

k

As Corporate Debt Increases,
So Do the Frequency of Financial Crisis

 

 

Trump Made Changes

 

 

 

Trump Estimated Income Tax Savings Changes on 10 Years

 

See Fiscal Math Is Daunting For The Aging Population  4/9/16 Atlanta FED]

 

m

 

Analysis: One of the weaknesses of National Income Accounting, covered in the next chapter, is it doesn't measure everything. Here, we see negative saving because expenditures from the underground economy have been included but income has not been included as people illegally avoid taxes. Also, expenditures on home improvements count, but gains when the home is sold are not personal income

 

but capital gains. SS and Medicare tax rates go up continually and aren't help when people get older and aren't savings.  Economic Well Being of U.S.-2014 Households FED survey

Tax Expenditures Helps Many

To get revenue loss from tax expenditures
 

 

 

      



 

 

 

 

 

 

 

 

 

What If-the World's Richest Paid For Government Spending