John Dunham joined the National Grocers Association on Capitol Hill last week to announce JDA’s latest economic impact on the independent grocers industry. The findings show independent grocers employ 945,000 people, paying over $30 billion in wages and $27 billion in taxes annually to the U.S. economy.
Visit www.nationalgrocers.org/economic-impact/ to see the entire study.
INSIGHTS: TAX FREEDOM DAY
By Guest Columnist Joseph Henchman:
Vice President of Legal and State Projects and Operations, The Tax Foundation
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income. In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 29.4 percent, or 108 days, into the year.
Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect. Finally, despite these tax increases, the economy is expected to continue its slow recovery, boosting profits, incomes, and tax revenues.
ON THE ECONOMY: WHY SEEMINGLY SMART PEOPLE MAKE STUPID POLICY DECISIONS
By John Dunham:
Managing Partner, John Dunham & Associates
Economic information is important, but even more important is how that information is communicated. We strive to not only make research understandable, but to tell an accurate story with information that can be acted on and can be used in decision making processes. This is why I am always at a loss when the Bureau of Economic (BEA) Analysis releases quarterly Gross Domestic Product (GDP) data. Just last week, the initial estimate of GDP for the 1st quarter of 2013 came out showing that the economy grew slightly. As expected the press strutted out the same statistic – the economy was up because consumer spending was up and, well consumer spending accounts for 70 percent of the economy. Hogwash!
Growth in the economy comes through higher production, not higher consumption. The BEA uses consumption to measure GDP only because these data are easier to obtain, and there is an accounting equality between consumption and production. However, as these numbers showed, consumption was up due to massive reductions in savings. In other words, American consumers are eating the seed corn that the economy needs to generate future productivity growth.
Much like a household, the American economy goes to work every day to produce stuff, and much like a household, the wages from that production are used to purchase stuff for consumption. If a family does not work hard and does not generate enough money to purchase lots of TV sets, and multiple automobiles, then in the long run, they can’t. It is true that in the short term they can use a credit card or a bank loan to purchase a high ticket item, but over the next year or 5 years they will need to reduce their consumption in order to pay back that loan. No matter what, in the end if a family wants to purchase something they will need to work to generate the income needed to buy it.
Economies work in the same way – and they are simply the aggregation of a bunch of households. If the economy produces less than it consumes, it is not growing – it is borrowing. While borrowing may be necessary in the short term (say in the case of a war), in the medium and long term, consumption will have to fall in order to pay back the loan.
This distinction is important because policies are being made based on the incorrect idea that consumption and production are the same thing. Today, the Federal government is pursuing policies designed to encourage consumption. Low interest rates discourage people from saving and investing, while fiscal policies that transfer money from those who work to those who do not discourage production and encourage consumption. These are just the opposite of what needs to be done to grow the economy and are being encouraged by the media and by pundits who have bought into the idea that consumer spending is 70 percent of the economy.
It’s not that policy makers are stupid people, or that either the Democrats or Republicans have some evil agenda to destroy the economy. But decision makers are not economists and they rely for the most part on the same information as the general public. When decision makers are given stupid information, they will make stupid decisions – which is why communicating complex economic ideas in a reasoned and understandable way is so important.
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