This morning, the Department of Labor released its monthly jobs report. During May, 345,000 jobs were lost and the unemployment rate reached 9.4%
The job loss was much better than anticipated: economists were expecting a loss of more than 500,000.
The four-month running average of the jobs number declined for the second straight month. When this value declines for four months, it has been a reliable indicator that a recession has ended. This is yet more encouraging news, suggesting that the severe recession begun during the Bush administration may be at an end.
Friday, June 5, 2009
Jobless Claims Continue to Decline
Initial jobless claims for the week ending May 30, 2009 were 621,000. This represents a decline of 4,000 from last week’s revised number. Continuing claims were 6,735,000, 15,000 les than last week’s number. This is the first time this number has declined during the current economic downturn.
In a previous post, I introduced what I call the “8-4 number”, which indicates how the four-week running average of initial jobless claims compares to the same value from eight weeks earlier. Based on an historical analysis, when this values declines for eight consecutive weeks, it indicates that a recession has ended. Currently, the value has declined for six weeks, giving hope that the current recession, begun during the Presidency of George W. Bush, may be at an end.
If next weeks initial jobless claims are less than 643,000, we will be one step closer to achieving this, and giving us a strong indication that the recession has ended.
In a previous post, I introduced what I call the “8-4 number”, which indicates how the four-week running average of initial jobless claims compares to the same value from eight weeks earlier. Based on an historical analysis, when this values declines for eight consecutive weeks, it indicates that a recession has ended. Currently, the value has declined for six weeks, giving hope that the current recession, begun during the Presidency of George W. Bush, may be at an end.
If next weeks initial jobless claims are less than 643,000, we will be one step closer to achieving this, and giving us a strong indication that the recession has ended.
Thursday, February 19, 2009
Continuing Claims Approach 5 Million
For the week ending February 14, 2009, seasonally-adjusted jobless claims were 627,000. This is the same as last week after an upward revision of 4,000. The four-week running average stands at 619,000. Continuing claims rose to 4,987,000, as did the four-week running average, which have now reached 4,839,500.
The initial claims continue to be the worst since the Reagan-era recession of the early 1980s, while the continuing claims are the worst in the 41-year series curretnl;y available from the Department of Labor.
The initial claims continue to be the worst since the Reagan-era recession of the early 1980s, while the continuing claims are the worst in the 41-year series curretnl;y available from the Department of Labor.
Tuesday, February 17, 2009
How Will The So-Called “FairTax” Affect Prices and Wages?
The “FairTax” is a proposal designed to replace essentially all federal taxes with a national retail sales tax on all new goods and on all services. The two most well-known proponents of this new tax system are talk show host Neal Boortz and Congressman John Linder: they have written two recent books on the subject. Hereafter, I will refer to these two gentlemen as B&L for brevity.
Recently, I have begun an examination of this plan, and started by trying to objectively evaluate the primary claims of its boosters. Before I continue this examination, I have to address one of the principal assertions, one that seems to permeate the discussion of this issue. This is the issue of what will happen to the price of goods and services, and to the take-home pay of Americans if the FairTax were to be implemented.
In their first book, B&L specifically claim that, even when including the addition of the FairTax, prices will not rise. They say that the prices of goods and services have, on average, an “imbedded tax” of 22%. This is complicated, but in essence it is based on the fact that workers and businesses and suppliers in the various steps in the production process all pay some kind of federal tax, and that the consequence is that the final price of goods and services must include this tax. If all of these federal taxes were eliminated, as they would under the FairTax, then all of this imbedded tax would disappear. They further assert that, after the taxes were removed, “market forces” would drive the prices down by this amount. Then, after the 23% FairTax is added, the prices would be back to where they were before. That is, when one looks at the relationship between the prices of goods and services before and after the implementation of the FairTax, there would be little or no change.
B&L then assert that with the FairTax, there would be no deductions from a worker’s gross pay. Therefore, everyone would get 100% of his or her paycheck. At various places in their 2005 book, B&L then go on to claim that because of this, people would get “…an immediate 25 to 30 percent increase in their take home pay” (B&L 2005, p. 83). This claim is repeated at several other places in the book.
So, after the FairTax is implemented, prices remain constant, and everyone gets a 25-30% increase in their take home pay because their gross pay would no longer be decreased due to income or payroll taxes. They put these two pieces together in no uncertain terms on pages 111 and 160. Anyone reading this book can come to no conclusion other than the assertion that everyone will have 25-30% more money every month and prices will not change. This would be wonderful! If this were true, who could be in opposition to this plan?
Think for a moment about this. Compare the days just before implementation of the FairTax to those just afterward. Prices are the same, but everyone has 25-30% more money. How is this possible? From where would the money come? Well, the truth is that it is impossible. B&L and the many other supporters who repeat this claim are stating something that is simply false.
The argument in favor of this scenario is complicated. At first reading, even I thought it sounded good. The reason that it is not true is also a bit complicated, but can be understood if you think of it in this way: B&L can’t do two things with the same pool of money. They can’t take the money that would be paid in federal taxes under the current plan and both reduce prices AND give the money to their employees by giving them their gross pay as take home pay. They can do one OR the other, but not both. Either prices will remain constant and everyone’s take home pay will do likewise, or everyone will get an increase in take home pay AND the prices of goods and services will go up about the same amount. When examining take home pay and prices, they will remain constant relative to one another.
I imagine some FairTax proponents who read this will likely want to write an immediate rebuttal, simply restating what can be found in B&L’s books and all over the internet. However, before you do this, I suggest that you look at their 2008 book. On page 141, they restate this scenario (prices constant, everyone gets much more in take home pay) as “…a claim that has taken on mythical proportion in the anti-FairTax literature.” They then proceed to state that this is NOT true, and that it is likely that prices and take home pay will probably both go up by about the same amount.
In their 2005 book, B&L repeatedly made this assertion. Then in their 2008 book, they speak as if this were some claim invented by anti-FairTax people. In short, they made an incorrect assertion in their earlier book, and then tried to disavow it in the 2008 book. Yet, their myth lives on. Throughout their books, and indeed throughout the FairTax literature, there is constant reference to keeping “100% of your paycheck”. They meant for us to believe that it was 100% of our current gross pay.
This whole scenario is, I believe, one of the principal reasons why many people support the FairTax. Yet, it is untrue, so untrue in fact that B&L now disclaim ever having said it. Keep this in mind when you read or hear anything about the FairTax.
Recently, I have begun an examination of this plan, and started by trying to objectively evaluate the primary claims of its boosters. Before I continue this examination, I have to address one of the principal assertions, one that seems to permeate the discussion of this issue. This is the issue of what will happen to the price of goods and services, and to the take-home pay of Americans if the FairTax were to be implemented.
In their first book, B&L specifically claim that, even when including the addition of the FairTax, prices will not rise. They say that the prices of goods and services have, on average, an “imbedded tax” of 22%. This is complicated, but in essence it is based on the fact that workers and businesses and suppliers in the various steps in the production process all pay some kind of federal tax, and that the consequence is that the final price of goods and services must include this tax. If all of these federal taxes were eliminated, as they would under the FairTax, then all of this imbedded tax would disappear. They further assert that, after the taxes were removed, “market forces” would drive the prices down by this amount. Then, after the 23% FairTax is added, the prices would be back to where they were before. That is, when one looks at the relationship between the prices of goods and services before and after the implementation of the FairTax, there would be little or no change.
B&L then assert that with the FairTax, there would be no deductions from a worker’s gross pay. Therefore, everyone would get 100% of his or her paycheck. At various places in their 2005 book, B&L then go on to claim that because of this, people would get “…an immediate 25 to 30 percent increase in their take home pay” (B&L 2005, p. 83). This claim is repeated at several other places in the book.
So, after the FairTax is implemented, prices remain constant, and everyone gets a 25-30% increase in their take home pay because their gross pay would no longer be decreased due to income or payroll taxes. They put these two pieces together in no uncertain terms on pages 111 and 160. Anyone reading this book can come to no conclusion other than the assertion that everyone will have 25-30% more money every month and prices will not change. This would be wonderful! If this were true, who could be in opposition to this plan?
Think for a moment about this. Compare the days just before implementation of the FairTax to those just afterward. Prices are the same, but everyone has 25-30% more money. How is this possible? From where would the money come? Well, the truth is that it is impossible. B&L and the many other supporters who repeat this claim are stating something that is simply false.
The argument in favor of this scenario is complicated. At first reading, even I thought it sounded good. The reason that it is not true is also a bit complicated, but can be understood if you think of it in this way: B&L can’t do two things with the same pool of money. They can’t take the money that would be paid in federal taxes under the current plan and both reduce prices AND give the money to their employees by giving them their gross pay as take home pay. They can do one OR the other, but not both. Either prices will remain constant and everyone’s take home pay will do likewise, or everyone will get an increase in take home pay AND the prices of goods and services will go up about the same amount. When examining take home pay and prices, they will remain constant relative to one another.
I imagine some FairTax proponents who read this will likely want to write an immediate rebuttal, simply restating what can be found in B&L’s books and all over the internet. However, before you do this, I suggest that you look at their 2008 book. On page 141, they restate this scenario (prices constant, everyone gets much more in take home pay) as “…a claim that has taken on mythical proportion in the anti-FairTax literature.” They then proceed to state that this is NOT true, and that it is likely that prices and take home pay will probably both go up by about the same amount.
In their 2005 book, B&L repeatedly made this assertion. Then in their 2008 book, they speak as if this were some claim invented by anti-FairTax people. In short, they made an incorrect assertion in their earlier book, and then tried to disavow it in the 2008 book. Yet, their myth lives on. Throughout their books, and indeed throughout the FairTax literature, there is constant reference to keeping “100% of your paycheck”. They meant for us to believe that it was 100% of our current gross pay.
This whole scenario is, I believe, one of the principal reasons why many people support the FairTax. Yet, it is untrue, so untrue in fact that B&L now disclaim ever having said it. Keep this in mind when you read or hear anything about the FairTax.
Thursday, February 12, 2009
Initial Jobless Claims Continue to Rise
Seasonally adjusted initial jobless claims for the week ending January 31 were 626,000, an increase of 35,000 over the previous week, which had been revised up another 3,000. This is the highest number since 1982 during the Reagan years. The four-week running average reached 582,250, a new high for this recession and again the highest since 1982.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Tuesday, February 10, 2009
The So-Called FairTax: Are The Claims True?
The so-called FairTax plan is a proposal to change the way in which federal taxes are collected. Instead of the several taxes currently collected by the IRS, including personal income taxes, social security taxes, corporate income taxes, and estate taxes, this proposal will rely on a tax on all new goods and on all services.
The primary proponents for this plan are Atlanta talk show host Neal Boortz and Congressman John Linder. They have written two books on the subject. I will refer to them these two authors and proponents as “B&L”.
Last time, I said that I would begin to look at the claims of B&L to see if they are true or at least reasonable. I chose to begin with the primary claims that are written on the outside covers of their two books. The first, which I began to examine last week, is that the so-called FairTax plan would, “eliminate federal taxes and the IRS”.
The first part of this assertion, that the plan will “eliminate federal taxes”, is not true. As I said last time, the total amount of federal taxes collected under the new plan would be exactly the same as that collected under the current system. In fact, “revenue neutrality” is a major component of the plan: B&L go to great lengths to indicated that the total taxes collected would be the same before and after implementation of the so-called FairTax.
So, this is a lie. If you don’t want to call it a “lie”, then you have to fall back on the notion that we are simply renaming the taxes. If we have taxes called “A” and we switch to collecting the same amount of taxes and call them “B”, would anybody call this the elimination of federal taxes?
Let’s look at the second part of the claim, the part that says that the so-called FairTax plan would lead to the elimination of the IRS. Why is this a good thing? Well, a lot of people don’t like the IRS. A lot of people don’t like taxes.
The Internal Revenue Service is the governmental agency in charge of collecting federal taxes. At present, it collects about $2.6 trillion. The budget of the IRS is about $11 billion. So, the cost of collection, as represented by the fraction of the total taxes collected that go to fund the IRS, is 0.42%. That is, four cents of every ten dollars collected.
If the so-called FairTax plan will lead to the elimination of the IRS, how will taxes be collected? B&L explain that this new tax on all new goods and on all services would be collected by the states. They say that 45 states already collect sales tax, so it shouldn’t be too difficult for them to collect the so-called FairTax and pass it along to the federal government. But first, businesses will have to collect the tax, as they do sales tax, and send it into the states. The states will get 0.25% of the tax collected, for providing the service. The individual businesses will also get 0.25% for their trouble.
So, the tax collectors will get 0.5% of the total tax to keep track of it and pass it along to the state and ultimately to the federal government. Now, we spend 0.42% of the total taxes collected on the IRS so that they can collect taxes. Under the so-called FairTax plan, we’ll be spending 0.50% on tax collection at the local and state level. The FairTax would cost more.
Will we need a large federal agency to monitor this whole thing? Well, surely we’ll need some kind of agency. The cost of this will be on top of the 0.50% that it is already costing us.
How is this a good thing? I’m not sure. Now, we pay about four cents for every ten dollars of total federal taxes to fund the IRS. Under the so-called FairTax plan, we would pay at least five cents, and probably a good deal more.
B&L think that eliminating the IRS is a very attractive thing. On the covers of their books, they have the bold letters “IRS” with a red circle around it and a red line through it. This has become a “logo” of the so-called FairTax plan. Apparently, they are relying on people’s displeasure with the IRS to promote their plan. They must not think that people would mind paying more (probably a good deal more) of their tax dollars for the collection of taxes, just as long as it didn’t go to something called “The IRS”.
The first claim of B&L is that the so-called FairTax plan will “eliminate federal taxes and the IRS”. The first part is not true, and the second part may be true, but their plan will wind up costing us more than the IRS costs now. So far, I don’t find anything compelling about the so-called FairTax plan. Perhaps B&L would like to explain to me how this is a good thing.
I’ll continue by examining more claims next time.
The primary proponents for this plan are Atlanta talk show host Neal Boortz and Congressman John Linder. They have written two books on the subject. I will refer to them these two authors and proponents as “B&L”.
Last time, I said that I would begin to look at the claims of B&L to see if they are true or at least reasonable. I chose to begin with the primary claims that are written on the outside covers of their two books. The first, which I began to examine last week, is that the so-called FairTax plan would, “eliminate federal taxes and the IRS”.
The first part of this assertion, that the plan will “eliminate federal taxes”, is not true. As I said last time, the total amount of federal taxes collected under the new plan would be exactly the same as that collected under the current system. In fact, “revenue neutrality” is a major component of the plan: B&L go to great lengths to indicated that the total taxes collected would be the same before and after implementation of the so-called FairTax.
So, this is a lie. If you don’t want to call it a “lie”, then you have to fall back on the notion that we are simply renaming the taxes. If we have taxes called “A” and we switch to collecting the same amount of taxes and call them “B”, would anybody call this the elimination of federal taxes?
Let’s look at the second part of the claim, the part that says that the so-called FairTax plan would lead to the elimination of the IRS. Why is this a good thing? Well, a lot of people don’t like the IRS. A lot of people don’t like taxes.
The Internal Revenue Service is the governmental agency in charge of collecting federal taxes. At present, it collects about $2.6 trillion. The budget of the IRS is about $11 billion. So, the cost of collection, as represented by the fraction of the total taxes collected that go to fund the IRS, is 0.42%. That is, four cents of every ten dollars collected.
If the so-called FairTax plan will lead to the elimination of the IRS, how will taxes be collected? B&L explain that this new tax on all new goods and on all services would be collected by the states. They say that 45 states already collect sales tax, so it shouldn’t be too difficult for them to collect the so-called FairTax and pass it along to the federal government. But first, businesses will have to collect the tax, as they do sales tax, and send it into the states. The states will get 0.25% of the tax collected, for providing the service. The individual businesses will also get 0.25% for their trouble.
So, the tax collectors will get 0.5% of the total tax to keep track of it and pass it along to the state and ultimately to the federal government. Now, we spend 0.42% of the total taxes collected on the IRS so that they can collect taxes. Under the so-called FairTax plan, we’ll be spending 0.50% on tax collection at the local and state level. The FairTax would cost more.
Will we need a large federal agency to monitor this whole thing? Well, surely we’ll need some kind of agency. The cost of this will be on top of the 0.50% that it is already costing us.
How is this a good thing? I’m not sure. Now, we pay about four cents for every ten dollars of total federal taxes to fund the IRS. Under the so-called FairTax plan, we would pay at least five cents, and probably a good deal more.
B&L think that eliminating the IRS is a very attractive thing. On the covers of their books, they have the bold letters “IRS” with a red circle around it and a red line through it. This has become a “logo” of the so-called FairTax plan. Apparently, they are relying on people’s displeasure with the IRS to promote their plan. They must not think that people would mind paying more (probably a good deal more) of their tax dollars for the collection of taxes, just as long as it didn’t go to something called “The IRS”.
The first claim of B&L is that the so-called FairTax plan will “eliminate federal taxes and the IRS”. The first part is not true, and the second part may be true, but their plan will wind up costing us more than the IRS costs now. So far, I don’t find anything compelling about the so-called FairTax plan. Perhaps B&L would like to explain to me how this is a good thing.
I’ll continue by examining more claims next time.
Saturday, February 7, 2009
Jobs Numbers Get Worse
The January jobs number released by the Department of Labor on Friday were the worse than in any month in the currently available data set provided by the Department of Labor, which began in 1975. In January, 598,000 jobs were lost. This pushes the total lost during the last year to 3,500,000. The current employment level (percentage of the civilian noninstitutional population that are currently employed) stands at 65.5%, which is the lowest level since 1987 during the last years of the Regan administration.
The official unemployment rate reached 7.6%, the worst since the last year of the Presidency of George H. W. Bush. However, this number does not reflect the true percentage of people who would like to work but are unable to find a job. In a recent post, I formulated a measure of that I call the Adjusted Unemployment Rate. This value stands at 10.1%, the worst since the third year of the Reagan Presidency. The difference between the official unemployment rate and this adjusted figure has reached 2.5%, the highest in more than 40 years. This difference reflects, to some degree, the extent to which workers have become frustrated and have stopped looking for work.
In combination with recent jobless claims data, these data continue to indicate a deepening recession and the worse economic situation in at least 25 years and probably since the Great Depression.
The official unemployment rate reached 7.6%, the worst since the last year of the Presidency of George H. W. Bush. However, this number does not reflect the true percentage of people who would like to work but are unable to find a job. In a recent post, I formulated a measure of that I call the Adjusted Unemployment Rate. This value stands at 10.1%, the worst since the third year of the Reagan Presidency. The difference between the official unemployment rate and this adjusted figure has reached 2.5%, the highest in more than 40 years. This difference reflects, to some degree, the extent to which workers have become frustrated and have stopped looking for work.
In combination with recent jobless claims data, these data continue to indicate a deepening recession and the worse economic situation in at least 25 years and probably since the Great Depression.
Thursday, February 5, 2009
Initial Jobless Claims Continue to Rise
Seasonally adjusted initial jobless claims for the week ending January 31 were 626,000, an increase of 35,000 over the previous week, which had been revised up another 3,000. This is the highest number since 1982 during the Reagan years. The four-week running average reached 582,250, a new high for this recession and again the highest since 1982.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
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