Unearned income

Source: Wikipedia, the free encyclopedia.
This article is about a property of personal income. For the financial accounting term, see deferred income. For The concept of unearned income in economics, see Economic rent. For more specific term for income from the ownership of capital equipment or equity, see Property income.

Unearned income is a term coined by

capital equipment.[1] As such, unearned income is often categorized as "passive income
".

Unearned income can be discussed from either an economic or accounting perspective, but is more commonly used in economics.

Economics

'Unearned income' is a term coined by

land rent and 'rent' generally.[2] George modified John Stuart Mill's term 'unearned increment
of land' to broaden the concept to include all land rent, not just increases in land price.

In

Labor Theory of Value, it may refer to all income that is not an immediate result of labor. In a neoclassical frame, it may mean income not attributed to the normal or expected returns to a factor of production. Generally it may refer to windfall
profits, such as when population growth increases the value of a plot of land.

Classical political economists, like

natural monopolies
and artificial monopolies, and didn't consider their incomes to be entirely earned.

In Marxian economics and related schools, unearned income originates from the surplus value produced by an economy, where "surplus value" refers to value beyond what is needed for subsistence.[3] As such, individuals and groups who subsist on unearned income are characterized as being in an exploitative relationship because the unearned income they receive is not generated by their effort or contribution (hence why their income is "unearned"). The existence of unearned income received on the basis of property ownership forms the basis for the Marxist class analysis of capitalism, where unearned income and exploitation are viewed as inherent to capitalist production.

United States

As defined by the American Social Security Administration, unearned income is all income that is not earned from one's job or from one's business. Some common types of unearned income are:[4]

  • The value of food or shelter received from someone, or the amount of money received to help pay for them;
  • Department of Veterans Affairs (VA) benefits;
  • Railroad retirement and railroad unemployment benefits;
  • Annuities, pensions from any government or private source, workers' compensation, unemployment insurance benefits, black lung benefits and Social Security benefits;
  • Prizes, lottery winnings, settlements and awards, including court-ordered awards;
  • Proceeds of life insurance policies;
  • Gifts and contributions;
  • Support and alimony payments;
  • Inheritances in cash or property;
  • Rental income;
  • Dividends and interest; and
  • Strike pay and other benefits from unions.

Taxation

Unearned income has often been treated differently for tax purposes than earned income, in order to

progressive income tax structure. Supporters argue that extraordinarily high incomes are unearned incomes, with the example of the United Kingdom, where income taxes on the highest brackets reached 98% in 1979.[5] In recent times the pendulum has swung the other way, and most Western countries tax unearned income more favourably than income from productive work for a number of reasons,[citation needed] including an expectation that much of this income ends up being recirculated into the economy, through things like spending or reinvestment.[citation needed
]

patents and other forms of exclusive production rights, especially in regards to biology and software.[citation needed
]

While classical free market economists were generally skeptical towards unearned incomes, more recent economists, like

Progressives
assert that the purpose of taxes themselves is to allocate resources to where they are most needed, and to prevent a system whereby capital is shifted upward at the expense of the lower tax brackets.

See also

  • Deferred income – Accounting Principle
  • Earned income
     – Refundable tax credit for low-to-middle class individuals in the U.S.
  • Economic rent – Difference between marginal product and opportunity cost
  • FIRE economy – Segment of the economy: finance, insurance, real estate
  • Landed gentry – British social class of wealthy land owners
  • Passive income – Income that requires little to no effort to earn and maintain
  • Property income – Income received by virtue of owning property
  • Rentier capitalism – Capitalism featuring rent-seeking without wealth creation
  • Surplus value – Concept in economics
  • Windfall gain – Unusually high income that is sudden and/or unexpected

References

  1. ISBN 0-415-24187-1
    . Property income is, by definition, received by virtue of owning property. Rent is received from the ownership of land or natural resources; interest is received by virtue of owning financial assets; and profit is received from the ownership of production capital. Property income is not received in return for any productive activity performed by its recipients.
  2. ISBN 978-1595230324
    .
  3. ISBN 978-0415087148
    . But here again Marx's theory must be understood in Marx's terms. He divides output three ways: into wage income ("variable capital"), property income ("surplus value") and replacement of depreciated machinery and raw materials, etc. ("constant capital")
  4. ^ " What is “unearned income”?", U.S. Social Security Handbook (retrieved December 27, 2012)
  5. ^ http://economics.ouls.ox.ac.uk/12647/1/168_Atkinson.pdf Atkinson, A.B., "Income Tax and Top Incomes over the Twentieth Century", December, 2003, p. 132
  6. ^ "2016 Federal Tax Rate" (PDF). RSM US LLP. Retrieved 4 September 2016.
Retrieved from "https://en.wikipedia.org/w/index.php?title=Unearned_income&oldid=1215985565"