1. 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

2. 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%

3. 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%

4. 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 8,449100 Composition of personal consumption Expenditures Durable goods$83612% Non-durable goods2,04129 Services4,11059 6,987100 Source: Economic Report of the President, 2003

5. 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% TOTAL24.4100%20,807100% Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 2002

6. Carbaugh, Chap. 9 6 Growth of total government outlays, 1960-2001 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% 1960 1970 1980 1990 2001 Federal, State and Local Government outlays as a percent of domestic output

7. 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

8. 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

9. 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

10. Carbaugh, Chap. 9 10 Progressive, proportional & regressive taxes Taxation TotalTotalAverageMarginal incometaxes duetax ratetax rate Progressive tax $0$0-- 10055%5% 2002010%15% 3004515%25% Regressive tax $0$0-- 1003030%30% 2005025%20% 3006020%10% Proportional tax $0$0-- 1001010%10% 2002010%10% 3003010%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.

11. Carbaugh, Chap. 9 11 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

12. Carbaugh, Chap. 9 12 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

13. Carbaugh, Chap. 9 13 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

14. Carbaugh, Chap. 9 14 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 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 0 Taxable income

15. Carbaugh, Chap. 9 15 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, 2002 32.3% 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