(AP Photo/Mark Lennihan, File) (AP2011)
America’s best chance of overcoming the great economic challenges of this age – leading the global economy, creating new jobs and fostering a culture of innovation – requires collaboration. To get there, we need a level of shared understanding about the issues that contribute to our current economic situation.
Too often we talk about numbers in the abstract – billions and trillions – and reference percentages without considering base population. We use phrases like the “federal deficit” and “national debt” interchangeably. It’s time to establish a common language when it comes to talking about our economy. Here are five concepts every American should understand in order to be part of our country’s future success.
1. The Difference Between a Million, a Billion and a Trillion
A shocking number of people do not understand the difference between a million, a billion and a trillion. One million is equal to a thousand thousands. One billion is equal to a thousand millions. A trillion is equal to one thousand billions. If you stack 1 million $1 bills on top of each other, it would measure 358 feet high; $1 billion would measure 68 miles high; $1 trillion would measure 67,866 miles – roughly a quarter of the way from the Earth to the moon. If you understand this concept, you have a base for factual and meaningful discussions.
2. The Unemployment Rate vs. How Many Americans are Working
The unemployment rate measures those people who have been actively looking for work for up to two years. It does not include those who have given up looking for work because they are discouraged, or those who receive Social Security disability insurance and have simply stopped looking for work (the number of which has gone up 49.7 percent from a decade ago, to more than 10 million people). And it may not include many people who are working off the books.
On paper, the December 2014 jobs report was strong. Employers added 252,000 jobs in December, and the unemployment rate fell to 5.6 percent. Yet job growth merely kept pace with population growth. The employment-to-population ratio remained at 59.2 percent. So, while the official unemployment rate has dropped from roughly 10 percent to less than 6 percent, the number of Americans working has barely changed.
3. The Difference Between the Federal Debt and the Deficit
Though debt and the deficit are linked, they are two different issues. The debt, as President Bill Clinton once said, is the amount we owe on the national credit card. The deficit is annual expenses over income. Under President Obama, the federal debt has doubled to $18 trillion. And according to a recent report from the Congressional Budget Office, interest costs are on track to rise to $5.6 trillion over the next 10 years, becoming the third-largest federal “program.”
4. Who Pays Taxes
Consider two hypothetical taxpayers: one heads a family of six and makes $100,000 a year; the other has $10 million in assets that do not produce any income. The taxpayer making $100,000 a year probably pays very little in federal income tax after 401k deductions, IRA benefits and various deductions. But this taxpayer pays plenty in other taxes, including state income, Medicare and Social Security taxes, totaling close to $20,000. The millionaire without income pays almost nothing, other than state property taxes and various local sales taxes. In fact, the top 40 percent of income earners pay 106 percent of the taxes. This example illustrates the difference between wealthy people: those working for income versus those sitting on assets. One pays lots of taxes, while the other pays very little.
5. Who Creates Jobs
It’s time to establish a common language when it comes to talking about our economy.
President Obama raised eyebrows during the 2012 presidential campaign when he said government creates jobs. Eventually he changed his tune and now talks about business creating jobs. However, he was right in two ways. Government creates jobs for government workers, although most economists agree this is not a great economic benefit since paying for those jobs with taxes taken from citizens is rather inefficient. Also, government policies do affect job creation. More paperwork for businesses, mandates for employers and added layers of bureaucracy stifle job creation. On the other hand, low interest rates, encouraging business investment and vibrant trade and exports encourage job creation.
It’s time to establish a common language when it comes to talking about our economy.
The next time you hear a politician talking about big-picture issues involving jobs, the deficit, the debt, taxes and unemployment, ask the tough questions and focus on the facts. If we start speaking the same fiscal language, maybe we can get our politicians to work on solving our biggest economic problems.
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