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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