By Bikna Huang
Since 2001, the American economy has been in and out of recessions. In 2008, the latest and most severe economic downturn began. The economy today is objectively much better than it was in 2008 when the effects of the Great Recession first hit. For example, looking at the tax revenue comparing the years 2007 to 2011 shows that tax revenue is returning to 2007 levels. Specifically, as the chart below shows, tax revenue from individual and corporation income taxes has increased from $898,549 (millions) in 2010 to $1,091,473 (millions) in 2011. What does this increase in tax revenue mean for the American economy? Does this mean the economy is making a turn in the right direction?
Looking at the graph, the amount of tax revenues was lowest in 2009 and 2010 when the recession hit America the hardest. However, in 2011, the revenues show an increase and a possible indication of the American economy moving in the right direction. It has been reported that tax collections (including all forms of taxation) has been growing for eight straight quarters now. On a more local level, some states have been more successful than others in tax collections in 2011. The Nelson A. Rockefeller Institute of Government reported that in 17 states the tax collections from the last quarter in 2011 had been lower than they had been four years ago, in 2008.
Nonetheless, tax collections in all 50 states have reported increases in 2011 compared to the tax collections from 2010. North Dakota, Illinois, Arizona, and Indiana have the highest reported tax collection increases from 2011. These states have profited from the oil and gas industries in the area in terms of tax collections. In California, tax collections grew by 11.3% than the previous year. The increases in tax collections indicates a more stabilizing American economy, but states like California will still face economic hardship even with an increase in tax collections.
It is still too early to tell whether the economy is actually improving, in fact, many people have mixed signals. Federal Reserve Chairman Ben S. Bernanke, is taking a “wait and see approach” with mixed signals regarding changes to inflation rates and interest rates. Bernanke and the Federal Reserve are looking into solutions that will help spur the economy without “undermining the credibility of the central bank as a bulwark against inflation.” The Federal Reserve estimates that the economy will grow 2.4 to 2.9 percent this year, and estimates that the unemployment rate could be as low as 7.8 to 8 percent by the end of the year.
The current unemployment rate is at 8.2 percent (March 2012), a 1.7 percent decrease from January 2010. The unemployment rate in January of 2010 was 9.9 percent, and the highest unemployment rate dated in American history was 10.80 percent which occurred in November of 1982. In March 2012, 120,000 jobs were added to the job market, almost half the job gains in February. Critics fear the results in April might not show similar results with the current economy growth because it may not be able to support thousands of new jobs.
Bikna Huang is an intern with TheFactFile.com who studies at CalPoly in San Luis Obispo, California.