Disposable incomeis totalpersonal incomeminus currenttaxes on income.[1]Innational accounting,personal incomeminuspersonal current taxesequals disposable personal income or household disposable income.[2]Subtracting personal outlays (which includes the major category ofpersonal [or private] consumption expenditure) yields personal (or, private)savings,hence the income left after paying away all the taxes is referred to as disposable income.
Not includingsales taxorproperty tax
Not includingvalue-added taxorproperty tax
Not includingvalue-added taxorproperty tax
Restated, consumption expenditure plus savings equals disposable income[3]after accounting for transfers such as payments to children in school or elderly parents' living and care arrangements.[4]
Themarginal propensity to consume(MPC) is the fraction of a change in disposable income that is consumed. For example, if disposable income rises by $100, and $65 of that $100 is consumed, the MPC is 65%. Restated, the marginal propensity to save is 35%.
For the purposes of calculating the amount of income subject to garnishments, United States' federal law defines disposable income as an individual's compensation (including salary, overtime, bonuses, commission, and paid leave) after the deduction of health insurance premiums and any amounts required to be deducted by law. Amounts required to be deducted by law include federal, state, and local taxes, state unemployment and disability taxes, social security taxes, and other garnishments or levies, but does not include such deductions as voluntary retirement contributions and transportation deductions. Those deductions would be made only after calculating the amount of the garnishment or levy.[5]The definition of disposable income varies for the purpose of state and local garnishments and levies.
Meanings of disposable income
editDisposable income can be understood as:
- National disposable income of a country: The national income minus current transfers (current taxes on income, wealth etc., social contributions, social benefits and other current transfers), plus current transfers receivable by resident units from the rest of the world.[6]
- Disposable personal (or family/household) income: The income that individuals or households have for their spending.
Discretionary income
editDiscretionary incomeis disposable income (after-tax income), minus all payments that are necessary to meet current bills. It is total personal income after subtracting taxes and minimal survival expenses (such as food, medicine, rent ormortgage,utilities, insurance, transportation, property maintenance, child support, etc.) to maintain a certainstandard of living.[7]It is the amount of an individual's income available for spending after the essentials have been taken care of:
Discretionary income = gross income – taxes – all compelled payments (bills)
The term "disposable income" is often incorrectly used to denotediscretionary income.For example, people commonly refer to disposable income as the amount of "play money" left to spend or save. TheConsumer Leverage Ratiois the expression of the ratio of totalhousehold debtto disposable income.[citation needed]
In the national accounts
editThesystem of national accountsdefined the concept of disposable income for all institutional sectors of the economy. For corporations it is equal toprofit retained,and for the government it is equal totaxes+ income received frompublic corporation.The sum of disposable income across all institutional sectors is called the national disposable income.[8][citation needed]
See also
editReferences
edit- ^"Income Data Quality Issues in the Annual Social and Economic Supplement to the Current Population Survey"(PDF).Archived fromthe original(PDF)on 2015-10-14.Retrieved2017-12-07.
- ^Ruser, John; Pilot, Adrienne; Nelson, Charles."Alternative Measures of Household Income: BEA Personal Income, CPS Money Income, and Beyond"(PDF).U.S. Bureau of Labor Statistics.Archived fromthe original(PDF)on 2014-06-11.Retrieved2013-08-23.
- ^https://portal.wsiz.rzeszow.pl/plik.aspx?id=12166[dead link]
- ^"Research Publications".parl.gc.ca.Archived fromthe originalon 21 August 2007.Retrieved27 May2017.
- ^"31 CFR 285.11".Legal Information Institute.Cornell University.RetrievedJune 29,2012.
- ^"Glossary:National disposable income".Eurostat.Retrieved2021-05-03.
- ^Linden, Fabian (1998)."A Marketer's Guide to Discretionary Income (abstract)".US Department of Education.Retrieved2007-12-27.
- ^"Glossary:National disposable income".ec.europa.eu.Retrieved2024-11-12.
External links
edit- A simple discretionary income calculator—even though this says it's measuring "disposable income," using the economist's language, it's discretionary income.
- Eurostat, News Release No. 60/2010,Household Savings and Disposable Income,30 April 2010
- Eurostat, Statistics Explained, Glossary article:National Disposable Income
- OECD Disposable income statistics
- Google – public data:GDP and Personal Income of the U.S. (annual): Disposal Personal Income
- Google – public data:GDP and Personal Income of the U.S. (annual): Disposal Personal Income per capita