I. Households Earn, Spend and Save


II. Business Population is Varied


III. Governments Tax, Spend, Regulate


IV. Taxation Philosophies


V. Tax Types



VI. Federal Revenues-Expenditures


VII. Are Taxes Fair?


Test Review Notes Chapters 1-7


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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,








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

2006 National Income Accounts billions of $ % of PI
Personal Income 10,983.4 100.0%
Personal Taxes 1,354.3 12.3%
Disposal PI 9,629.1 87.7%
Consumption 9,590.3 87.3
Savings 38.8 0.4

Data from GDP  of the Bureau of Economic Analysis


D. Consumer Demographics








See Evolution American Workplace


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


Tax Expenditures Helps Many

To get revenue loss from tax expenditures




The 2018 Tax Bill





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]


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


Legal Form Definition Ease of
of Life
Owner's Liability Taxes


One Owner Easy Limited Difficult Unlimited, personal assets at risk Once as personal income
Partnership Two or More Owners Easy Shortest Easier Unlimited, personal assets at risk Once as
personal income
Corporation Company is a legal entity Somewhat Difficult Unlimited Easiest Limited to investment Twice as income & dividends



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


D. Corporate Profits Up Income Tax Down

Payroll Taxes Replace Income Taxes






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

A Look At Corporate Tax Inversions Inside And Out


E. Pass through, pay lower personal tax rate.



Image result for pass through income


Pass Through Businesses Data and Policy





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.
Wealth Tax Economics

2. Payroll Taxes  a. social security and Medicare

    (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








Much is Required by Existing Law




The Day Mandatory Spending By The 20US Government







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


Property Tax Per Capita 2017

What the 2018 elections mean for state and local spending









F. Foreign Nations Tax Stuff




Chart Source










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  






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.
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
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                
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/




Some want higher taxes on the Wealthy.


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











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










The key word here is "effective" -- these are the tax rates people actually pay after factoring in things like the mortgage interest deduction, the child tax credit and the myriad other deductions and credits written into the U.S. tax code. Values for 2011 and 2012 aren't yet available, but the CBO
The key word here is "effective" -- these are the tax rates people actually pay after factoring in things like the mortgage interest deduction, the child tax credit and the myriad other deductions and credits written into the U.S. tax code. Values for 2011 and 2012 aren't yet available, but the CBO



Average Tax Rate from Wiki its taxes paid/ taxable income



Taxing Where the Money is!


 The Math Problem That Could
Sink the Bernie/AOC Agenda




See insufficient funding










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





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

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

Infographic: The Global Cost Of Tax Avoidance  | Statista





Infographic: Where Shadow Economies Are Well Established | Statista



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

Federal Tax Revenue Sources 1999 2002 2005 2008

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

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


Personal income taxes 48%  43% 38% 39%
Social Security, Medicare, unemployment 34% 35% 32% 38%
Corporate income taxes 10% 7% 11% 10%
Excise, customs, estate, gift, and miscellaneous taxes 8% 7% 6% 6%
Borrowing to cover deficit Surplus 8% 13% 15%
Source IRS 1040 FORMS        


C. Outlays


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 






Federal Spending Up

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

Taxes Flat

Image result

Others Spend More

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






VII. Are Taxes Fair?
Who Pays the Tax?
        B.  Unit VII. Review In a human population fairness can not be agreed upon.

Comparing Regressive Payroll Tax
US Has Low Safety Net



Some Couldn't Afford Safety Net


by 2018 Many Questioned
Liberal Progressive Order


Follow the Money



People Are Paying Less 
Income and Capital Gains Taxes



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



X. 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


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Chapter 7 Class Discussion Questions Table of Contents
Chapter 7Homework Questions Economics Internet Library



Masters of Tax Evasion




Andrew Fieldhouse/EPI

Image result





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




President's Proposed Discretionary Spending

Image result


Sorry America Your Taxes Aren't High

US 21%




US 32%










Shifts in Shares of U.S. Workers across Occupations