104 



MULTIPLE PURPOSE RIVER DEVELOPMENT 



Table 11 presents the asset-debt position of households with 

 incomes greater than $5,000. It shows a wide prevalence of debt, 

 which results from lumping all incomes above $10,000 into one 

 bracket. Since debt for consumption purposes falls rapidly in the 

 higher brackets, in our subsequent analysis the figures for the 

 bracket over $10,000 are applied only in the range $10,000 to 

 $15,000. Also, in the higher brackets, the relevance of the borrow- 

 ing rate ceases, because the rate of return on assets increases while 

 the borrowing cost falls, until at some point on the income scale, 

 the borrowing rate is no longer marginal — the return on assets 

 playing the role instead. When that point is reached, consumer 

 credit is likely to be in the form of charge accounts owed as a 

 matter of convenience, and mortgages owed — in part — in order to 

 raise funds for investment purposes. 



Table 1 1 also shows the interest rates applicable to debtors in 

 these income classes. As in Model A, rates of 9 per cent on short- 

 term debt and 5 per cent on mortgages are used in deriving these 

 rates, but in the case of the upper-income classes, it is assumed 

 that interest payments are deducted from the tax liability and the 

 rates are adjusted accordingly. 



To derive the rates of return which upper-income families earn 

 on their assets, we estimate asset holdings by income class and the 

 rates applicable to each asset category. Table 12 shows in what 

 form upper-income classes receive property income as reported in 

 income tax returns. 



TABLE H. Debt Position of Families with Incomes Over $5,000 



Per cent owed x. i t, . j Interest rate 



T 1 .i: cinn Per cent owed Per cent owed onnlir^hlp 



Income class more than $100 ^^,, neither kind f^Kor^ 



($ thousand) of short-term ^J^f ^^ ^^^^ (percent) 



5 to 7.5 56 11 33 6.2 



7.5 to 10 52 22 26 5.6 



Over 10 41 22 37 4.9 



» 1956 Sui-vey of Consimier Finances, op. cit., pp. 701-03. 



In the case of business and professional income, part is actually 

 managerial wages or income earned for supplying professional 

 services. While we have no direct data on this breakdown, the 

 Department of Commerce has estimated that, in 1949, 11.3 per cent 



