Market System Participants  Chapter 7
A. Households  (families and individuals) receive income in return for their 
B. Businesses
C. Federal government 

1. Government spending has grown because of
    a. Population growth  b. War and defense requirements 
    c. Urbanization d. Environmental concerns  e. Inflation
    f. Transfer payments
       1. Social Security 2. Medicare and Medicaid   3. Terrorism 
       4. Social programs: Aid to Families with Dependent Children
       5. Mid-1960's were 3% of national output, today they are
           12% of output
2. Government spending and taxing
    a. Federal spending and taxing
       1. Expenditures
           a. Income security   b. Defense (military preparedness)
           c. Interest on public debt  d. Discretionary programs
      2. Receipts
          a. Personal income taxes
              1. Marginal rate is the rate paid on additional or
                  incremental income. 
                  a) The increase in taxes paid divided by the
                      increase in income. 
                  b) In a progressive tax system, each higher tax
                      bracket (grouping) has a higher rate on the
                             income in the higher bracket. 
               2. Average tax rate is the taxes paid divided by total
                        taxable income. 
         b. Payroll Taxes: premiums paid on compulsory
             insurance plans  
             1. social security and Medicare (both employer and
                 employee pay)  
             2. unemployment taxes (just employer pays)
         c. Corporate Income Taxes
         d. Excise Taxes are a sales tax on items such as
            jewelry, tobacco, and liquor.
         e. Licenses and Fees
D. State and local governments have mandatory balanced budget
 laws making the accumulation of debt difficult
 

E. Taxation philosophies 
    1. Ability to pay  is on people with high income or wealth.
         a. Income tax      b. Sales tax    c. Estate taxes
     2. Benefit received (User taxes)
         a. Those who derive a benefit pay for said activity.
         b. Examples
             1. Gasoline taxes are used to improve roads.
             2. Social security taxes are used to provide
                 retirement and other benefits for participants.

F. Taxation philosophies
    1. Ability to pay
        a. Those with the ability (income or wealth), pay more.
        b. Examples
           1. Income tax   2. Sales tax   3. Estate taxes
    2. Benefit received (User taxes)
        a. Those who derive a benefit from some government action
            pay for said activity.
        b. Examples
           1. Gasoline taxes are used to improve roads.
           2. Social security taxes are used to provide retirement and
              other benefits for participants.

G. Types of tax rates
     1. Progressive
         a. Tax rate increases as income increases
         b. Tax rate decreases as income decreases
         c. Those earning higher income pay a higher average tax rate.
         d. Example: Federal Income Tax                
             Note: Moving into a higher tax bracket does not result in your paying a
              higher rate on lower bracket earnings.
     2. Proportional
         a. Tax rate as percentage stays the same.
         b. Examples: Social Security taxes are proportional up to the maximum income
             level of about  $76,200 because both employer and employee pay a constant
             rate of about 8%, but then the tax is regressive as the rate drops to zero
     3. Regressive 
         a. Amount paid divided by income drops as income increases.
         b. Happens one of two ways
             1. Rate drops as income increases (FICA after about $76,200 in 2000) 
             2. Amount of tax is constant so at higher incomes, the effective tax rate
                 is lower (excise taxes on cigarettes, liquor, etc.)
H. Shifting the tax incidence
   . 1. Passing the burden of taxes onto others (consumers ultimately pay)
     2. Businesses and professionals try to do this
     3. The consumer bears most of the tax burden in a market econom