this purpose. First I will address the proportional tax. The proportional income tax is what is known as the flat tax. Proportional tax takes the same percentage of everybody’s income it means that you have a single tax rate. Say 10% so if your income is $10,000 you pay a $1,000. If your income is $100,000 you pay $10,000. Now this is the least unjust income tax. It means that the tax burden increases in proportion to your income. Your income is 10 times as large your tax is 10 times as high $1000 for $10,000 $10,000 for $100,000. On the diagram there are two mutually exclusive scenarios. Table 8A and B will demonstrate what happens with the effect of governments taxes. A will demonstrate what happens if households earn and keep a 100 billion; then, B what happens if the government collects a 100 billion with a proportional income tax, and spends it. There is no significance to the shapes, and, or designs of these charts. So over on the left hand side is the government, on the right is financial markets, on the bottom is consumer goods and services, and in the middle is households; that rectangle inside of households represents $100 billion in household income. The two alternatives I want to consider is that (A) households get to keep it, and spend it, or (B) the government takes it and spend it. Now the average saving rate in the United States today is about 5% according to Buechner so across the entire population people save about 5% of their personal income. (Recording) So that means for every $100 dollars income on average people save $5, and that means since I’m taking the same percentage of everybody’s income; that percentage should be reflected in this $100 billion. So I’m going to leave this in the peoples hands-$5 billion will be saved, and $95 billion would be spent on consumption. And that is the way I have indicated here. The $5 billion is saved all the arrows represent flows of money. The $5 billion...
