Download Tax Rate Theory

Types of Unemployment & Income Taxes
U.S. Federal Income Tax System
Unemployment Rate
Analyzing more than just one number…
10.2%
Great Recession
On the surface, the
unemployment number
looks very good, but……
5.1%
4-Types of Unemployment
• Structural
– Unemployed skills do not match current demand for labor
• Cyclical
– Related to business cycle-----too low a level of GDP growth
– occurs during recessions (at trough) or periods of slow GDP growth
• Frictional
– Temporarily between Jobs or new to labor force
• Seasonal
– Out of work based on time of year
Gov’t policy is focused on
Structural & Cyclical
Full Employment
• Lowest unemployment rate possible in long run
– Full Employment = the rate without cyclical unemployment
– Full Employment = frictional & structural
Economists use 4.5% for USA
Full employment = economy at full potential
Producing on PPF line
(seasonal is adjusted out of number…)
LRAS1
Price
Level
P1
-----------------
SRAS1
E1
AD1
Y1
Real
GDP
3 Types of Taxes
• Progressive– Tax rate increase as income increases
– Example: Income Taxes
• Regressive– Consumes larger % of lower income worker’s salary
– Example: Gasoline Tax, Bridge Tax
• Flat
– Same % for everyone
– Example: Sales Tax, Some State income taxes
Federal Gov’t Taxes
• Federal Income Tax
– Progressive Tax: tax rate increases as income increases
• Social Security Tax– 6.2% of salary on first $110,000 income
– Your employer also pays 6.2%!!
– Benefit: Receive monthly Gov’t pension starting at 65 (or older)
• Medicare Tax
– 1.45% of entire salary
– Why: Gov’t health insurance starting at 65
2013 Federal Tax Rate Brackets
Tax Rate
Bush Tax
cuts are now
permanent
New top
bracket
Single
Married filing Jointly or
Qualifying Widow(er)
10%
Up to $8,925
Up to $17,850
15%
$8,926 – $36,250
$17,851 – $72,500
25%
$36,251 – $87,850
$72,501 – $146,400
28%
$87,851 – $183,250
$146,401 – $223,050
33%
$183,251 – $398,350
$223,051 – $398,350
35%
$398,351 – $400,000
$398,351 – $450,000
$400,001 +
$450,001 +
$6,100
$12,200
39.6%
Standard Deduction
Unemployment & Tax Worksheet