Types of Unemployment & Income Taxes U.S. Federal Income Tax System Unemployment Rate

Analyzing more than just one number… Great Recession 10.2% 5.1% On the surface, the unemployment number looks very good, but……

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 –o ccurs 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 (seasonal is adjusted out of number…) Economists use 4.5% for USA Full employment = economy at full potential Producing on PPF line

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 RateSingle 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, % $400,001 + $450,001 + Standard Deduction $6,100 $12,200 New top bracket Bush Tax cuts are now permanent

Unemployment & Tax Worksheet