Reading 17: National Income

[JohnOwens]

Hi All,
I am looking for a more comprehensive understanding of National Income. Can someone please explain the various components and how some pieces are Pre-Tax, some are After Tax and how this all relates to the indirect tax and subsidy adjustment?
Thanks,
John
National Income
= Employee Wages and Benefits
+ Pre Tax Profits [Corporate and Government]
+ Incomes of Unincorporated Business
+ Rental Incomes
+ Interest Incomes
+ Indirect Tax
- Subsidies

 

[oktavian]

Took me a while to get my head round this. Hopefully someone can correct me if I’m not quite right,
We’re trying to see the income generated by the public, business and government. We have to be careful not to count tax twice (once as public or business income, and then again as government income). The general approach seems to be count everything before tax where possible.
Counting worker’s income is easy, it’s just wages + benefits before tax.
If you want to see how much money a business or the government made, you need to count it before the tax is deducted, so do this where possible.
However, indirect taxes are removed before we count a business’s income (sales tax or VAT), so we have to see the country’s total indirect taxes and add that into the total national income.
Subsidies are like a negative tax, and they add to a business’s income, so we have to deduct it to get the fair income.
An alternative way of counting would be to count everything after tax is deducted, and then add the government’s total tax income fot they year… seems to me like this would reach the same number..