s Federal 4 The U.S. Economy: Public and Private Sectors 4-1 s Federal Chapter Objectives Important Facts About U.S. Households and U.S. es. Corporate Form Domination in Sales and Profits. Principle and Agent Issues. Economic of in the Economy. Categories of Spending and the Sources of Revenues. 4-2 s Federal 4-3 Functional Distribution of -2005 By Function Performed Wages & Salaries Rents Interest Proprietor s Corporate Profits National Received (Percent) 0 10 20 30 40 50 60 70 71% 1% 5% 9% 14% Source: Bureau of Economic Analysis 1
s Federal Personal Distribution of -2004 Group (Households) Lowest Second Middle Fourth Personal Received (Percent) 0 10 20 30 40 50 60 3.4% 8.7% 14.7% 23.2% 4-4 Highest 50.1% Source: Bureau of the Census s Federal 4-5 Group (Households) Household Uses of -2005 Personal Taxes Personal Saving Personal Consumption Composition of Consumption Household Expended (Percent) 0 10 20 30 40 50 60 70 80 90 0% 12% Consumption Divided Between 59% Services 29% Nondurable Goods 12% Durable Goods 88% Source: Bureau of Economic Analysis s Federal The Plant. Firm. Industry. Multiplant Firms. Vertically Integrated. Conglomerates. 4-6 2
s Federal 4-7 Sole Proprietorship Partnership Corporation Domestic Output by Type 8% 72% Corporations Partnerships Sole Proprietorships Percentage of Firms Corporations Partnerships Sole Proprietorships 84% 11% 5% Percentage of Sales Source: U. S. Census Bureau s Federal Advantages of Corporations Corporate Securities. Stock. Bond. Limited Liability. Hiring of Specialists. Unlimited Lifetime. Principal-Agent Problem. 4-8 s Federal s Providing the Legal Structure. Maintaining Competition. Monopoly. Regulation. Regulated Monopolies. Antitrust Laws. Sherman Act 1890. 4-9 3
s Federal s Redistributing. Transfer Payments. Market Intervention. Taxation. Reallocating Resources. Market Failure. Externalities or Spillovers. Negative or Positive Types. 4-10 s Federal s Correcting for Negative Externalities. Legislation. Specific Taxes. Correcting for Positive Externalities. Subsidize Consumers. Subsidize Suppliers. Provide Goods Via. 4-11 s Federal s Public Goods and Services. Private Goods. Rivalry. Excludability. Public Goods. Nonrivalry. Nonexcludability. Free-Rider Problem. Quasi-Public Goods. The Reallocation Process. 4-12 4
s Federal s Promoting Stability. Unemployment. Inflation. s : A Qualification. Political Context. Overregulation. Underregulation. Benefits and Costs. Not Perfectly Carried Out. 4-13 s Federal es The Expenditures Goods & Services Net Taxes Expenditures Resource Market Product Market Resources Goods & Services Goods & Services Net Taxes Households 4-14 s Federal 4-15 Purchases Transfers Percentage of U.S. Output 35 30 25 20 15 10 5 0 27% 5% 22% Transfer Payments Purchases 31% 12% 19% 1960 2005 5
s Federal 4-16 Global Perspective Total Tax Revenue Selected Nations Percent of Total Output-2004 Sweden Denmark Norway Finland France Italy United Kingdom Germany Canada Australia United States Japan South Korea 10 20 30 40 50 50.7 49.6 44.9 44.3 43.7 42.2 36.1 34.6 33.0 31.6 25.4 25.3 24.6 Source: Organization for Economic Cooperation and Development s Federal Federal Federal Expenditures-2005 Four Stand-Out Areas of Spending Pensions & Security National Defense Health Interest on the Public Debt 0 10 20 30 40 50 7% 17% 35% 4-17 Source: U. S. Office of Management and Budget s Federal Federal Federal Tax Revenues-2005 Progressive Tax Rates. Brackets of. Marginal Tax Rate. Average Tax Rate. 4-18 6
s Federal 4-19 Federal Federal Tax Revenues-2005 Basic Revenue Sources Personal Tax Payroll Taxes Corporate Taxes Excise Taxes All Other 0 10 20 30 40 50 3% 4% 13% 37% 43% Source: U. S. Office of Management and Budget s Federal State s Primary Revenues. Sales & Excise Taxes - 48% Personal Taxes - 34% Corporate Taxes & License Fees Most of Balance Primary Expenditures. Education 35% Public Welfare 28% Health & Hospitals 7% Highways 7% Public Safety 4% Other 19% 4-20 s Federal Local s Primary Revenues Property Taxes 73% Sales & Excise Taxes 17% Primary Expenditures Education 44% Welfare, Health & Hospitals 12% Public Safety 11% Housing, Parks, & Sewers 8% Streets & Highways 5% 4-21 7
s Federal Financing Social Security Last Word Demographic Changes. Severe Long-Run Shortfall in Social Security Funding. Annual Pay-as-You-Go Plan. Impact of Baby Boomer Retirements. 2017 Revenues Less Than Payments Trust Fund Withdrawals. Trust Fund Exhausted in 2041. Possible Benefit Reductions and Tax Revenue Increases. 4-22 s Federal Financing Social Security Last Word Possible Solutions. Stock & Bond Investments. Payroll Tax Increases. Individually Directed Accounts for Annuity s Owned by. Half of Payroll Deduction in Privately Owned and Managed Accounts Phased in Over Time. Consensus Solution to be Very Difficult. 4-23 s Federal 4-24 Functional distribution of income Personal distribution of income Durable goods Nondurable goods Services Plant Firm Industry Sole proprietorship Partnership Corporation Stock Bond Limited liability Key Terms Page Principal-agent problem Monopoly Externality Negative externalities Positive externalities Public goods Free-rider problem Quasi-public goods purchases Transfer payments Personal income tax Marginal tax rate Average tax rate Payroll taxes Corporate income tax Sales and excise taxes Property taxes 8
s Federal Next Chapter Preview The United States in the Global Economy Chapter 5 4-25 9