Continuing taxes Deficit financingTodayMarriage penalty/Int’l incomeThe marriage penaltyExample of the marriage penalty: TaxesRecall marginal tax rates, 2007Example 1, singleExample 1, marriedExample 2, singleExample 2, marriedWhy the difference?Example 1: Cameron/Erin, $80K eachExample 2: Pat $30K/Shannon $200KTwo reasons that this happensFor more on the marriage penalty…International incomeSummary: Marriage penalty/int’l incomeChanges in behavior due to taxationLabor decisionsEmpirical literatureThe Laffer curveSlide 22Changes in savingSlide 24Summary: Changes in behaviorCorporate taxationSlide 27Slide 28Basic structureMore on corporate taxationSummary: Corporate taxationDebts and deficits in the USSome terminologySlide 34The US federal deficitTwo other factorsWhat are the effects of public debt?Slide 38Overlapping Generations ModelSlide 40Summary: Debts and deficits in the USNext lectureContinuing taxesDeficit financingToday: More on the US revenue system, including the corporate tax; Deficit financingToday4 “mini-lectures”Other issues with personal income taxesThe marriage penaltyInternational incomeChanges in personal behavior due to taxationNumber of hours workedSavingCorporate taxation (briefly)Deficits and debtsMarriage penalty/Int’l incomePreviously…Rate structure showed that there are different tax rates for married people than for single peopleIn this “mini-lecture…”We examine the marriage issue furtherIncome earned by Americans in other countries is also looked atThe marriage penaltyThere are many reasons that people in the United States decide not to marryCostly to divorce if the marriage does not work out wellMany low-income people may lose benefitsPeople receiving public assistance may lose qualification for these programs if they marry someone who is workingTax burden may increase as a married couple than as if they lived together unmarriedExample of the marriage penalty: TaxesSuppose a simple caseOnly taxable income determines taxes that have to be paidSee what happens to tax burden when some couples get marriedRecall marginal tax rates, 2007Official Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable Income Marginal Tax RateTaxable Income Marginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over 35 $349,700 and over 35Source: http://www.irs.gov/formspubs/article/0,,id=164272,00.htmlExample 1, singleCameron has $80,000 in taxable incomeTax burden: $16,510.75 total10% of $7,82515% of $24,02525% of $45,25028% of $2,900Erin has $80,000 in taxable incomeTax burden: $16,510.75 total10% of $7,82515% of $24,02525% of $45,25028% of $2,900Official Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable IncomeMarginal Tax RateTaxable IncomeMarginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over35 $349,700 and over35As single people, Cameron and Erin pay a total of $33,021.50 in taxesExample 1, marriedCameron and Erin get marriedTotal taxable income is $160,000Tax burden: $33,792.50 total10% of $15,65015% of $48,05025% of $64,80028% of $31,500$771 more than the total paid if they are singleOfficial Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable IncomeMarginal Tax RateTaxable IncomeMarginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over35 $349,700 and over35Example 2, singlePat has $30,000 in taxable incomeTax burden: $4,108.75 total10% of $7,82515% of $22,175Shannon has $200,000 in taxable incomeTax burden: $52,068.25 total10% of $7,82515% of $24,02525% of $45,25028% of $83,75033% of $39,150Official Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable IncomeMarginal Tax RateTaxable IncomeMarginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over35 $349,700 and over35As single people, Pat and Shannon pay a total of $56,177 in taxesExample 2, marriedPat and Shannon get marriedTotal taxable income is $230,000Tax burden: $55,100 total10% of $15,65015% of $48,05025% of $64,80028% of $67,35033% of $34,150$1,077 less than the total paid if they are singleOfficial Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable IncomeMarginal Tax RateTaxable IncomeMarginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over35 $349,700 and over35Why the difference?Look at marginal tax rates and the cut-offsExample 1: Cameron/Erin, $80K eachOfficial Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable Income Marginal Tax RateTaxable Income Marginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over 35 $349,700 and over 35More income is taxed in the 28% bracket after they get marriedExample 2: Pat $30K/Shannon $200KOfficial Statutory Tax Rate Schedule (2007)Single Returns Joint ReturnsTaxable Income Marginal Tax RateTaxable Income Marginal Tax Rate$0-$7,825 10% $0-$15,650 10%$7,825-$31,850 15 $15,650-$63,700 15$31,850-$77,100 25 $63,700-$128,500 25$77,100-$160,850 28 $128,500-$195,850 28$160,850-$349,700 33 $195,850-$349,700 33$349,700 and over 35 $349,700 and over 35As a married couple, less income is taxed in the 28% and 33% brackets; more in the 25% bracketTwo reasons that this happensWhen there is one person that earns almost all of the income, more money is usually subject to the lower marginal ratesNotice that the two lowest brackets vary by a factor of twoAt the higher brackets, the