The Household Sectors
Households have a number of functions in the economy: they receive income from value added; they consume goods and services and save and invest; and they pay taxes. In the sectoring of households for the SAM, each of these functions must be represented. However, because Senate Bill 1837 specifies that a complete dynamic analysis must examine taxpayers’ behavioral response to changes in taxes, the primary criterion for household sectoring is household tax status. For this SAM, eight household sectors are delineated. These sectors correspond to the marginal tax brackets specified in the California tax code, with the addition of a high income household.
Sectoring of households according to their primary wage earner’s marginal tax bracket not only distinguishes the households for tax purposes but it also results in a grouping of households according to income levels. A grouping of households by income allows the modeler to distinguish consumption and income patterns between income levels. The household sectoring was accomplished using the Franchise Tax Board stratified sample data to obtain the distribution of wages and other income by marginal tax rate for California Personal Income Tax data for 2000. This information was used to produce a percentage distribution of factor payments generated by industrial and government sectors to the eight household groups.
The sectors are delineated by marginal tax rate so that sector “9.3 MT” delineates the household group subject to a marginal tax rate of 9.3.