Discuss the definitions and means of calculating national income, personal income, and disposable personal income
Yours is an interesting question that illustrates the complexity of calculating these important economic statistics published by the Bureau of Economic Analysis (BEA) of the Department of Commerce. Let’s start with a written description of these frequently used statistical series and then follow with a table that shows how these three measures of income differ.
National income is a broader national level economic measure than is personal income. National income includes payments to individuals (income from wages and salaries, and other income), plus payments to government (taxes), plus retained income from the corporate sector (depreciation, undistributed profits), less adjustments (subsidies, government and consumer interest, and statistical discrepancy).
Personal income measures national level income to persons and nonprofit corporations. Personal income includes payments to individuals (income from wages and salaries, and other income), plus transfer payments from government, less employee social insurance contributions.
Disposable personal income measures the after-tax income of persons and nonprofit corporations. It is calculated by subtracting personal tax and nontax payments from personal income. In 1999, disposable personal income represented approximately 72 percent of gross domestic product (i.e., total U.S. output).
TABLE: Relation of National Income, Personal Income, and Disposable Personal Income
Billions of dollars; seasonally adjusted annual rates
|Statistical Measure||1998 Value for the U.S.|
|National Income||$ 7,036.4|
|Personal Income||$ 7,358.9|
|Less corporate and governmental income|
|Corporate profits with inventory valuation and capital consumption adjustments||(846.1)|
|Contributions for social insurance||(621.9)|
|Wage accruals less disbursements||(3.5)|
|Plus other income and transfers to persons|
|Personal interest income||897.8|
|Personal dividend income||348.3|
|Government transfer payments to persons||954.8|
|Business transfer payments to persons||28.8|
|Disposable Personal Income||$ 6,286.2|
|Less personal tax and nontax payments||(1,846.1)|
Data source: Department of Commerce, Bureau of Economic Analysis, Economic Report of the President, February 2000.
Bureau of Economic Analysis Home Page. http://www.bea.doc.gov
U.S. Government Printing Office. 2000. Economic Report of the President (February), Tables B-25 (page 335) and B-28 (page 340). http://w3.access.gpo.gov/eop/
Samuelson, Paul A. and William D. Nordhaus. 1998. Economics. Boston: Irwin/McGraw-Hill, pp. 743, 754, and Chapter 19.