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Chapter 7 Market
System Participants
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Book Summaries |
I. Market system participants
A. Households
(families and individuals)
B. Businesses
C. Governments
II. Households receive income in return for their economic resources.
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2000 Functional Distribution of
Income |
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| 2000 | 2006 | |||
| Wages and Salaries | $5,639 | 70.3% | 7,448.3 | 69.9% |
| Corporate Profit | 960 | 12.0% | 1,553.7 | 14.6% |
| Proprietors' Income | 711 | 8.9% | 1,006.7 | 9.4% |
| Interest | 568 | 7.1% | 598.5 | 5.6% |
| Rents | 140 | 1.7% | 54.5 | 0.5% |
| Data take from Gross Domestic Product of the Bureau of Economic Analysis | ||||
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For more information on income distribution, visit The US Census Bureau. |
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What people do with their 2006 income |
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| in billions | % 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 |
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Data take from Gross Domestic Product of the Bureau of Economic Analysis |
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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. |
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III. Business population
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|
Legal Form |
Definition |
Ease of Formation |
Length of Life |
Raising Capital |
Owner's Liability |
Taxes |
|
Sole Proprietorship |
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 |
C. Businesses come in all sizes.
|
Legal Forms of Business |
Number of Firms |
Percent of Firms |
Percent of Sales |
|
Sole Proprietorship |
16,154,000 | 75% | 6% |
|
Partnership |
1,493,000 | 7% | 5% |
|
Corporation |
3,965,00 | 18% | 89% |
| Totals | 21,612,000 | 100% | 100% |
| Data from page 81 of
14th edition of Economics by McConnell and Brue, Irwin/McGraw-Hill For more information on business ,visit The US Census Bureau/2002 Economic Census. |
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Analyzing 2000 Tax Rates for a Single Filer |
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| 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 | ||
2) After the recent tax cut, the average tax rate and amount paid by a single person having
bracket ending taxable income for 2003
is appears below.
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Analyzing 2003 Tax Rates for a Single Filer |
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| 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 | ||
3. For an historical view of tax rates which peaked at 88% in 1942-43 View CTJ Data Sheet as HTML .
2. Payroll Taxes: premiums paid on compulsory insurance plans
V. Taxation philosophies
VII. Shifting the tax incidence
VIII. Major Categories of Federal Income and Outlays for Fiscal
Year 1999 and 2002
A. Reported by IRS in form 1040 after the
Tax Rates Schedules.
B. Income
| Income Source | 1999 | 2002 | 2005 |
| Personal income taxes | 48% | 43% | 38% |
| Social Security, Medicare, unemployment, and other retirement taxes | 34% | 35% | 32% |
| Corporate income taxes | 10% | 7% | 11% |
| Excise, customs, estate, gift, and miscellaneous taxes | 8% | 7% | 6% |
| Borrowing to cover deficit | 8% | 13% | |
| Source IRS 1040 FORMS | |||
C. Outlays
| Outlays | 1999 | 2002 | 2005 |
| Social security, Medicare, and other retirement | 35% | 38% | 37% |
| National defense (15%) , veterans benefits and services (2%), and foreign affairs (1%) | 18% | 20% | 24% |
| Social programs: 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% |
| Net interest on the debt | 12% | 8% | 7% |
| 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% |
| Surplus to pay down debt | 7% | NONE | None |
| Law enforcement and general government |
2% |
3% |
2% |
| Source IRS 1040 FORMS | |||
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