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Chapter 7 Market System Participants

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Economists Critique
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    I. Market system participants
         A. Households (families and individuals)
         B. Businesses
         C. Governments

II. Households receive income in return for their economic resources.

2000 Functional Distribution of Income (in billions of dollars)
	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
For more information on income distribution, visit The US Census Bureau.

By early 2013 debt which had reached 390 billion was down to about 350 billion with much coming from peope walking away from home mortgages. In Spain this is not legal and Spains housing bubble crash is causing deriouse problems fpr people who can't pay. Here, the FED is [aying the bill with printed money.

What People Did with Their 2006 Income			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. Who Pays the Taxes in the USA ? from the Big Picture
	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
Data take from Gross Domestic Product of the Bureau of Economic

  III. Business population
       A. Types of businesses include manufacturers,
              wholesalers, retailers, and services.
         B. Legal forms of business ownership

C. Businesses come in all sizes Data from Economist Magazine 10/20/12 and

http://www.middlemarketcenter.org/wp-content/uploads/2012/01/Middle_Market_Research4.pdf

Legal Form

Definition

Ease of Formation

Length of Life

Raising Capital

Owner's Liability

Taxes

Size of Business

Firms

Employees

Sales

Survived 2007-10

2007-10
job creation

2010-11
employment change

In Business > 20 YEAR

Sole
Proprietorship

One Owner

Easy

Limited

Difficult

Unlimited, personal assets at risk

Once as personal income

Small

6 mil

31%

<$10,000,00

57%

2.5%

16%

Partnership

Two or More Owners

Easy

Shortest

Easier

Unlimited, personal assets at risk

Once as personal income

Medium

197,000

40 mil

34%

$10 Million to $1 Billion

82%

+2.2 mil

3,8%

70%

Corporation

Company is a legal entity

Somewhat Difficult

Unlimited

Easiest

Limited to investment

Twice as income & dividends

Large

2,100

35%

> 1 $Billion

97%

-3.7 million

0.8%

71%

IV. Federal government
      A. Why 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. Government spending and taxing
          1. Federal spending and taxing
              a. Expenditures
                 1. Income security
                 2. Defense (military preparedness)
                 3. Interest on public debt
                 4. Discretionary programs

Fiscal Cliff Avioded with partial reversal of Bush II tax cuts, 1/2/12 from WSJ

             b. 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 person.
                     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
                 2. Payroll Taxes: premiums paid on compulsory insurance plans
                     a. social security and Medicare (both employer and employee pay)
                     b. unemployment taxes (just employer pays)
                 3. Corporate Income Taxes
                 4. Excise Taxes are a sales tax on items such as jewelry, tobacco,
                     and liquor.
                 5. Licenses and Fees
         2. State and local governments have mandatory balanced budget laws
              making the accumulation of debt difficult

Analyzing 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

Analyzing 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

V. 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 who derive a benefit from some
               government action pay for said activity.
         2. Examples
              a. Gasoline taxes are used to improve roads.
              b. Social security taxes are used to provide
                  retirement and other benefits for participants.
It's the Inequality Stupid 02/04/11 Issue of Mother Jones
Taxing the rich 4/11/11, NY Times

Some want higher taxes on the Wealthy.

VI. Types of tax rates
        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 the U.S. Federal Tax System? A Historical and International Perspective
                    by Tom Piketty and Emmanuel Saez
            6. Merely Affluent vs. Truly Rich explores the change in top bracket taxes.
               NYT, Nov 2, 2010
        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.)
VII. Shifting the tax incidence
         A. Passing the burden of taxes onto others (consumers ultimately pay)
         B. Businesses and professionals try to do this
         C. The consumer bears most of the tax burden in a market economy

Average Tax Rate from Wiki its taxes paid/ taxable incom

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	2008	http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
Personal income taxes	48%	43%	38%	39%
Social Security, Medicare, unemployment, and other retirement taxes	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	Our Free Internet Libraries improve grades and careers. 3 Free Business Book Summaries Including New York Times Bestsellers Free Stuff For Students is an extensive collection.
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%
Source IRS 1040 FORMS
IX. Additional Reading: Democratic Capitalism vs. Capitalistic Democracy How Tax Rates have Changed NYT, 11/29/12

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