Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition Chapter 9: The Mixed Economy of the United States

Carbaugh, Chap. 9 2 Functional distribution of income, 2001 The Mixed Economy: Households Source: Economic Report of the President, 2003 Wages and salaries 74% Rents 1% Interest 7% Corporate profit 9% Proprietor income 9%

Carbaugh, Chap. 9 3 Personal distribution of income, 2001 The Mixed Economy: Households Source: US Dept. of Commerce, Bureau of the Census Lowest 20 percent 3.5% Second 20 percent 8.7% Middle 20 percent 14.6% Fourth 20 percent 23.0% Top 20 percent 50.1%

Carbaugh, Chap. 9 4 Households as spenders and savers, 2001 The Mixed Economy: Households AmountPercent (billions) of total Disposition of household income Personal consumption expenditures$6,98783% Personal taxes1,29215 Personal savings1702 8, Composition of personal consumption Expenditures Durable goods$83612% Non-durable goods2,04129 Services4, , Source: Economic Report of the President, 2003

Carbaugh, Chap. 9 5 US business firms in 1999 The Mixed Economy: Business Number ofBusiness firms (mill.)receipts (bill.) Form of businessNumberpercentDollarspercent Proprietorships17.672%$9695% Partnerships1.98%1,8299% Corporations4.920%18,00986% TOTAL %20,807100% Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2002

Carbaugh, Chap. 9 6 Growth of total government outlays, The Mixed Economy: Government Source: Economic Report of the President, various issues 26.4% 28.3% 30.2% 31.4% 28.2% 0%5%10%15%20%25%30%35%40% Federal, State and Local Government outlays as a percent of domestic output

Carbaugh, Chap. 9 7 Personal income taxes 49% Corporate income taxes 10% Excise, Customs, Estate, Gift and misc. taxes 4% Social Security, Medicare & other retirement taxes 37% Federal Receipts Federal government expenditures and receipts, 2002 Government Finance Social security, Medicare, & other retirement 47% National defense 17% Net interest on the debt 8% Other 17% Health 11% Federal Expenditures Source: Economic Report of the President, 2003

Carbaugh, Chap. 9 8 Education 35% Highways 7% Other 42% Expenditures State and local receipts and expenditures, 2002 Government Finance Sales and Excise taxes 20% Other 29% Property tax 17% Revenue from the Federal Government 19% Corporate income tax 2% Receipts Individual income tax 13% Public welfare 16% Source: Economic Report of the President, 2003

Carbaugh, Chap. 9 9 Taxes and tax rates Taxation NationAverage tax rate Sweden56.4% France49.3 Austria47.3 Italy46.0 Germany42.8 United Kingdom40.9 Canada39.5 Japan32.3 Australia31.7 United States31.6 Total tax receipts as a percent of domestic output, 2001 Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2002

Carbaugh, Chap Progressive, proportional & regressive taxes Taxation TotalTotalAverageMarginal incometaxes duetax ratetax rate Progressive tax $0$ %5% %15% %25% Regressive tax $0$ %30% %20% %10% Proportional tax $0$ %10% %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 Federal income tax rates for a single taxpayer, 2002 Taxation Tax bracketTaxesAverageMarginal OverUp todue*tax ratetax rate $06,000$60010%10% 6,00027,9503,89314%15% 27,95067,70014,13921%27% 67,700141,25036,69026%30% 141,250307,05094,72031%35% 307,050and over38.6% * Computed at the top of the six taxable income brackets. Source: Internal Revenue Service, 2002 Tax Rate Schedules

Carbaugh, Chap Share of federal personal income tax paid by various income groups, 2002 Taxation Percentiles rankedAdjusted gross incomePercentage of federal adjusted gross incomethreshold on percentilespersonal income tax paid Top 1%$313,46937% Top 5%128,33656 Top 10%92,14467 Top 25%55,22584 Top 50%27,68296 Bottom 50%less than 27,6824 Source: US Congress, Joint Economic Committee, October 2002

Carbaugh, Chap Size of government in selected nations, 1999 Taxation Government expenditures as a percentage Nationof domestic output Sweden60.8% Denmark55.1 France54.3 Netherlands47.2 Germany46.9 Canada42.1 United Kingdom40.2 Japan36.9 Australia32.9 United States32.8 South Korea19.4 Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2000

Carbaugh, Chap Progressive vs. flat-rate income tax Taxation 23,35056,550117,950256,500 15% 28% 31% 36% 39.6% 20% Progressive tax Flat-rate tax Tax rate Taxable income

Carbaugh, Chap Taxes on goods & services as a share of total tax revenue Taxation Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, % 28.0% 27.5% 26.8% 26.0% 21.4% 20.1% 16.4% 0%5%10%15%20%25%30%35%40% United Kingdom Netherlands Germany Italy France Canada Sweden Japan United States Taxes on goods and services as a percent of total revenue, 2001