Author: John Bouman

The Definition of Poverty The poverty thresholds, as determined by the United States Census Bureau, vary by the size of a household and typically increase from year to year. In 2025 it is $15,060 for a household of one person (thresholds in Hawaii and Alaska are higher). A family of three is considered poor if it earns less than $25,820 in 2025, and it is $31,200 in 2025 for a family of four (these amounts may vary a little bit depending on the make-up of the family). For larger families, the thresholds are higher. The Bureau looks at the amount an average family spends on necessary food and multiplies this by three to arrive at the poverty line. The U.S. Census Bureau does not distinguish between the different areas of the country, even though the cost of living varies widely within the United States. When measuring a household’s income, the U.S. Census Bureau includes all forms of monetary income, such as earnings, unemployment compensation, cash welfare payments, Social Security benefits, pensions, interest, rent, alimony, and child support. The official poverty rate does not include non-cash benefits, such as food stamps, housing subsidies, and health care assistance. However, since 2014, the Census Bureau began to publish an unofficial poverty rate which includes the above mentioned forms of income plus income from earned-income tax credits, housing subsidies, school lunch and home...

The Old Age Survivors and Disability Insurance (Social Security) program The Social Security Program is mostly a retirement program, but it has welfare elements, as well. In addition to providing retirement income for many citizens, it pays for widows, orphans, and disabled persons. Including the employer’s contribution, $12.40 of every $100 earned is paid to the government for the Social Security trust fund. A person is eligible for Social Security income starting at the age of 62. Benefits depend on how many years one has worked, the amount of the total contribution, and the age at which a person retires (retiring earlier will decrease monthly benefits, and retiring later will increase monthly benefits). Many people feel that the system provides a false sense of security. Workers are led to believe that they will be secure in their retirement days because there is social “security.” Because contributions are not saved for future benefits (the system is pay-as-you-go, i.e. current workers are contributing to current retirees’ benefits), and past administration have used surplus Social Security funds to help pay for the overall budget deficit, Social Security may only serve to provide minimal benefits to those reaching the “golden years.” Until 2021, the program ran a surplus in its trust fund. However, since 2021, as more Baby Boomers have retired, Social Security has experienced a deficit. So far, the Social Security program...

The Difference Between Average and Marginal Tax Rates The United States individual income tax system is a progressive tax system. This means that households with higher incomes pay a higher percentage in tax. Because of the recently passed tax reform, the tax brackets for individuals and married couples have changed (see tables below). For persons filing “single”, the marginal tax rates are as follows: 2025 Rate Income Bracket Old (2017) Rate Old Income Bracket 10% Up to $11,600 10% Up to $9,525 12% $11,601-$47,150 15% $9,525-$38,700 22% $47,151-$100,525 25% $38,700-$93,700 24% $100,526– $191,950 28% $93,700-$195,450 32% $191,951-$250,525 33% $195,450-$424,950 35% $250,526 -$626,350 35% $424,950-$426,700 37% $626,351+ 39.6% $426,700+ In the new system, an individual who earns, for example, $40,000 is in the 12% marginal tax bracket. This means that for every additional dollar earned over $40,000 (and up to $47,150), this person pays 12 cents in federal income tax. Note that this person still only pays 10% over the first $11,600 earned. Therefore the average tax paid for this person will be less than 12% (see video at the bottom of this page for a sample calculation). For married couples filing jointly, the marginal tax rates are as follows: 2025 Rate Income Bracket Old (2017) Rate Old Income Bracket 10% Up to $23,850 10% Up to $19,050 12% $23,851-$96,950 15% $19,050-$77,400 22% $96,951-$206,700 25% $77,400-$156,150 24% $206,701-$394,600 28% $156,150-$237,950...

What’s in This Chapter? Imagine a country that discourages international trade because it believes that trading with other countries leads to a loss of domestic jobs. Similarly, imagine that within this country there are states or provinces that do not want to trade with other states or provinces, because they want to protect jobs within their region. Then imagine villages and towns that do not want to trade with each other for the same reason. And then imagine that people believe that it is best for them not to trade with other people because they are afraid that others will take away their employment. What remains is an economy in which people live like cave people, and one in which there is no trade, no specialization, little opportunity for advancement, limited economic growth, and a much lower standard of living and life expectancy. For the same reasons that it is beneficial to trade with individuals or other villages, it is beneficial, economically, to trade with other countries. Countries with the freest international trade policies have the highest economic standards of living. Conversely, countries with the greatest degree of protectionist policies have the lowest standards of living. This chapter discusses the advantages of free trade. It also looks at protectionist arguments and analyzes the strengths and weaknesses of these...

Adam Smith According to the famous eighteenth century economist and “father” of economics, Adam Smith, the most important reason why nations trade is that it allows each country to specialize in making those products that it can most efficiently produce. Please visit Adam Smith for information about Adam Smith (pictured) and a content description of his most famous book, The Wealth of Nations (official title: An Inquiry into the Nature and Causes of the Wealth of Nations). In addition, Econlib has free content of Adam Smith’s Wealth of Nations, as well as his other famous book, The Theory of Moral Sentiments. The Law of Absolute Advantages When a country produces a product more efficiently than another country, it has an absolute advantage in producing that good. It is economically beneficial for this country to specialize in the production of this product and trade with another country. A country has an absolute advantage in producing a product if it can make a product more efficiently (at lower cost) than another country. Countries should specialize in producing products in which they have an absolute advantage. They should sell these products in exchange for products in which other countries have an absolute advantage. A Numerical Example of Absolute Advantage Trade The following numbers represent hours of production needed to manufacture 1 barrel of oil and 1 watch, respectively. China Nigeria Oil 30 10...