You are here

Indirect Taxes

25 April, 2016 - 09:12

The final component of the income measure of GDI is indirect business taxes. Indirect taxes are taxes imposed on the production or sale of goods and services or on other business activity. (By contrast, a direct tax is a tax imposed directly on income; the personal income and corporate income taxes are direct taxes.) Indirect taxes, which include sales and excise taxes and property taxes, make up part of the cost to firms of producing goods and services. Like depreciation, they are part of the price of those goods and services and are therefore treated as part of the income generated in their production. Indirect business taxes amounted to 7.6% of GDI in 2008.

Table 21.2 below shows the components of GDI in 2008. Employee compensation represented the largest share of GDI. The exhibit also shows the components of GDP for the same year.

In principle, GDP and GDI should be equal, but their estimated values never are, because the data come from different sources. Output data from a sample of firms are used to estimate GDP, while income data from a sample of households are used to estimate GDI. The difference is the statistical discrepancy shown in the right-hand column of the Table 21.2. Some of the difficulties with these data are examined in the Case in Point feature on discrepancies between GDP and GDI.

Table 21.2 GDP and GDI, 2008

Gross domestic product

$14,405

Gross Domestic Income

$14,260.0

Personal Consumption Expenditures

10,169.5

Compensation Of Employees

8,089.8

Gross Private Domestic Investment

2.013.6

Profits

2,226.7

Government consumption expenditures and gross investment

2.943.9

Rental income of persons

63.1

Net exports of goods and services

-706.5

Net interest

903.8

   

Taxes on production and imports

1,076.9

   

Consumption of fixed capital (depreciation)

1,899.7

   

Statistical discrepancy

160.5

 

The table shows the composition of GDP and GDI in the third quarter of 2008 (in billions of dollars at an annual rate). Notice the rough equality of the two measures. (They are not quite equal because of measurement errors; the difference is due to a statistical discrepancy and is reduced significantly over time as the data are revised.)

Sources: Bureau of Economic Analysis National Income and Product Accounts, Tables 1.10 and 1.1.5 (November, 2008). See Brent R. Moulton and Eugene P. Seskin, “Preview of the 2003 Comprehensive Revision of the National Income and Product Accounts,” Bureau of Economic Analysis, Survey of Current Business, June 2003, pp. 17–34.