August/Mid-September 2021 — Northwood University McNair Center for the Advancement of Free-Enterprise and Entrepreneurship

Introduction

As August ended and we moved into September, several economic conditions have become obvious. U.S. inflation is high and rising. Overall, food prices are up over 3 percent from August 2020 with beef up 12.2 percent and poultry, fish and eggs up collectively 8 percent year over year. Even big-ticket items like used cars are up 32 percent year to date, while gasoline is up over 43 percent. New car, light truck and SUV prices are up over 7 percent year-over-year, with the average price of a new automobile, light truck and SUV averaging more than $41,000 … an all-time high. Compounding these problems is the availability of new vehicles. Many consumers cannot buy a new vehicle as the global chip shortage for the semiconductors that power today’s modern vehicles remain in short supply. Recent reports estimate the chip shortage could very well continue into 2023. Finally, the price of a new home is up more than 14 percent in comparison to late 2020. Lumber prices have come down substantially from the 300 percent price increase earlier this year giving cause to celebrate, while many construction projects have been delayed due to the sheer shortage of copper and bronze products.

Key August / Mid-September Data

Positive and Negative Signs

A recent Fox News poll showed that Americans are extremely or very concerned about many of the factors that drive our economy. Eighty-two percent of Americans were concerned about inflation and rising prices. Seventy-four percent were concerned about the corona virus and the direction of the COVID-19 pandemic. Seventy-three percent of Americans were extremely or very concerned about the way America exited from Afghanistan and the amount of military equipment left behind. Seventy-two percent of Americans are extremely or very concerned over the current unemployment situation in the United States with more than 10 million Americans unemployed and more than 11 million jobs to be filled.

Finally, 70 percent of Americans from the Fox News poll said they were extremely or very concerned about the possibility of attacks by terrorists around the world or in the United States as a result of America pulling out of Afghanistan. The Federal Reserve Bank of Atlanta’s GDPNow indicator shows U.S. GDP growing at 3.7 percent for Q3 2021, down substantially from 6.6 percent in Q2. Based on current data and our analysis of numerous reports from the U.S. Federal Reserve Bank, University of Michigan’s RSQE, the World Bank, and J.P. Morgan Chase, we see U.S. GDP growing roughly 5.5 percent for all of 2021 but slowing to 3.3 percent in 2022 and roughly 2.2 percent in 2023. We also see the rebound and recovery of payroll employment trailing real GDP with total employment not exceeding its pre-pandemic level until the end of 2022. We also see the unemployment rate continuing to fall for the rest of this year and average roughly 5.5 percent in 2021, 4.7 percent in 2022, and 4.3 percent in 2023.

Current Issues

This month’s current issues are proposed tax increases, who pays their fair share and our growing U.S. national debt. With the endorsement of President Biden, Democrats in the U.S. House of Representatives are pushing a massive tax plan that will accompany a new spending bill if adopted in its entirety will result in 5.5 trillion dollars in additional U.S. government spending and programs. As part of this historic federal budget proposal, advocates will succeed in raising the top U.S. corporate income tax rate to 26.5 percent from 21 percent, It will raise the top capital gains tax rate to 25 percent from 20 percent while increasing the top individual income tax rate to 39.6 percent from 37 percent, placing the United States at the top of the industrialized world for corporate income tax rates and moving us ever closer to the top relative to capital gains taxes and individual income taxes.

President Biden is constantly reminding Americans that rich people must pay their fair share of taxes. The following may surprise the average American. First of all, close to 50 percent of all tax returns are dual tax returns. Second, according to the IRS in 2018, the top 1 percent of American tax returns earned $540,000 or more, earned 20 percent of the taxable income and paid 40 percent of the total personal income tax paid in America. In the same year, the top 2-5 percent of Americans earned between $218,000-$540,000, representing 16 percent of the total income in America and paid 20 percent of the total income taxes. The top 5-10 percent earned between $152,000-218,000, representing 11 percent of the income and paid 11 percent of the taxes. In total, the top 10 percent of tax returns paid 70 percent of all personal income taxes in the United States in 2018. It is also important to note that the bottom 50 percent of all income tax returns filed paid just 3 percent of the personal income taxes in 2018. What does it mean to pay one’s fair share? President Biden has yet to give an exact answer … only the general direction that the wealthy need to pay more…seems to us they may already pay more than their fair share.

Nor do we believe the solution to solving America’s national debt problem of $28.8 trillion, or 126 percent of U.S. GDP is taxing the rich and successful job creators within the U.S. economy.

Conclusion

We believe the U.S. government needs to adopt a federal balanced budget amendment, similar to those that 49 out of the 50 U.S. states have. It seems like once or twice a year for the last decade we have been calling for fiscal restraint from the federal government. It is extremely important that our government understand that we have a spending problem, not a revenue problem. Until the federal government comes to grips that there is not an infinitely funded piggy bank to finance government programs, America will continue to travel down the road to economic serfdom…and eventually reach a point where the road will not have an exit.

Contact Us

Comments or questions should be directed to Dr. Timothy G. Nash at: tgnash@northwood.edu. The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by McNair student scholar, Kristin Tokarev. To view Northwood University’s Monthly Economic Outlook Newsletters from previous months, please visit: mcnair.northwood.edu/mcnair-economic-outlook. For more information about Northwood University, our academic programs and enrollment opportunities for students, visit www.northwood.edu.