251n14.CLASS NOTES FOR ECONOMICS 251

DR. WILLIAM SHINGLETON

FALL 2005

EDIT IN 14 POINT FONT

CHAPTER 33 TAXES EQUITY VS EFFICIENCY

ADD LORENZ CURVE/GINI COEFFICIENT

REVIEW INCOME TAX/COVERED IN THIRD WEEK

PROGRESSIVE

PROPORTIONAL

REGRESSIVE

MARGINAL TAX RATE

FOR WHOM?

YOUR MARGINAL TAX RATE

AVERAGE TAX RATE

TAX REVENUE = TAX BASE * TAX RATE

EFFECT OF A TAX CHANGE ON BASE

LOOPHOLES

ROLE OF DEDUCTIONS, CREDITS, AND EXCLUSIONS

PAYROLL TAXES/SOCIAL SECURITY

WHOLE SYSTEM IS NEARLY PROPORTIONAL

THE FLAT TAX ALTERNATIVE

WHAT IS (TAXABLE) INCOME?

TAX INCIDENCE IN THE LABOR MARKEET

WHAT IS FAIR? ADAM SMITH

TAXES SHOULD BE SIMPLE AND CERTAIN

ABILITY TO PAY PRINCIPLE

BENEFIT PRINCIPLE

CH 34 TRANSFER PAYMENTS

SOMETHING FOR NOTHING

PURPOSE:

SOCIAL INSURANCE

REDUCE INEQUALITIES?

MARGINAL TAX RATE FOR PROGRAMS

CASH TRANSFER/SOCIAL SECURITY

IN-KIND TRANSFER

FOOD STAMPS

MEDICAID

EFFECT ON BUDGET

44 PCT SOCIAL SECURITY

23 PCT MEDICARE

12 PCT MEDICAID

NOTHING ELSE MORE THAN 3 PCT

BOTH TRANSFERS AND TAXES REDUCE SUPPLY OF LABOR

EFFECT OF TRANSFER RATES ON LABOR/INCOME CHOICES

TEXT GRAPH INCOME VS HOURS WORKED

SHOWS EARNED INCOME AS WL

SHOWS TRANSFER AS A SHIFT (ADD TO TOP)

EFFECTIVE MARGINAL TAX RATE ON TRANSFERS

ASSUMES RECIPIENTS WOULD BE IN LABOR FORCE

POVERTY: SOURCE: http://www.census.gov/Press-Release/www/releases/archives/income_wealth/005647.html

US POVERTY (YEAR 2004/AUGUST 2005 RELEASE)

WHAT IS INCOME? Alternative Measures of income

Money income excluding capital gains before taxes. This is the official definition used in Census Bureau reports.

Money income after taxes (without earned income credit (EIC)). This is definition 1 minus federal and state income taxes exclusive of the EIC, minus payroll taxes, plus capital gains, and minus capital losses.

Money income after taxes (including EIC). This is definition 1a plus the EIC.

Definition 1 less government cash transfers. Government cash transfers include nonmeans-tested transfers such as social security payments, unemployment compensation, and government educational assistance (e.g., Pell Grants), as well as means-tested transfers such as aid to families with dependent children (AFDC, ADC), temporary assistance to needy families (TANF), and supplemental security income (SSI). (For a complete listing of transfer income, see definitions 9 and 12.)

Definition 2 plus capital gains. Realized capital gains and losses are simulated as part of the Census Bureau’s federal individual income tax estimation procedure.

Definition 3 plus imputed health insurance supplements to wage and salary income. Employer-paid health insurance coverage is treated as part of total work compensation.

Definition 4 less payroll taxes. Payroll taxes are payments for social security old age, survivors, and disability insurance, and for hospital insurance (medicare).

Definition 5 less federal income taxes. Definition 7 shows the effect of the earned income credit (targeted to low-income workers) separately.

Definition 6 plus the earned income credit.

Definition 7 less state income taxes.

Definition 8 plus nonmeans-tested government cash transfers. Nonmeans-tested government cash transfers include social security payments, unemployment compensation, workers’ compensation, nonmeans-tested veterans’ payments, U.S. railroad retirement, Black lung payments, Pell Grants, and other government educational assistance. (Pell Grants are income-tested but are included here because they are very different from the assistance programs included in the means-tested category.)

Definition 9 plus the value of medicare. Medicare is counted at its fungible value.1

Definition 10 plus the value of regular-price school lunches.

Definition 11 plus means-tested government cash transfers. Means-tested government cash transfers include AFDC, ADC, TANF, SSI, other public assistance programs, and means-tested veterans’ payments.

Definition 12 plus the value of medicaid. This definition counts medicaid at its fungible value.

Definition 13 plus the value of other means-tested government noncash transfers, including food stamps, rent subsidies, and free and reduced-price school lunches.

Definition 14 less medical programs. This is cash income plus all noncash income except imputed income from own home, minus the fungible values of medicaid and medicare.

Definition 14 plus net imputed return on equity in one’s own home. This definition includes the estimated annual benefit of converting one’s home equity into an annuity, net of property taxes.

POVERTY DATA

12.7 PERCENT OF POPULATION (POVERTY RATE)

MEDIAN INCOME $44,389

POVERTY THRESHOLD $19,350 (FAMILY OF 4)

POVERTY THRESHOLD $9,570 (SINGLE INDIVIDUAL)

15.7 PERCENT WITHOUT HEALTH INSURANCE

11.2 PERCENT OF CHILDREN

WITHOUT HEALTH INSURANCE