Soaring prices of commodities and other goods are significantly contributing to the slowdown of the American economy.
In a further indication this, 58 percent of States that report quarterly sales tax collections have reported a decline in revenue:
“Of the 36 states that have released sales-tax data for the first three months of this year, 21 showed outright declines, compared with the first quarter of 2007, according to a tally to be released Thursday by the Rockefeller Institute of Government, a research arm of the State University of New York.
“‘The sales-tax declines suggest that consumption, retail sales and the income needed to support spending are slowing considerably,’ authors Donald Boyd and Lucy Dadayan say in the report. Forty-five states collect sales taxes, which are the largest or second-largest tax source for most.”
Meanwhile the Commerce Department has reported increased consumer spending in March by .4 percent, however much of that increase can be attributed to the increase in prices Americans are paying for goods and commodities:
“Today’s reports also showed that the Federal Reserve’s preferred measure of consumer prices rose more than anticipated [emphasis added], and that manufacturers are paying the most for goods in four years.”
In other words, when Americans have to pay higher prices, less goods and services are sold, and this hurts the economy. By extension, this is drying up revenues to State governments, as noted by the decline in sales tax revenue, and many of these States are already in deep deficits for this fiscal year.
In addition to harming the overall economy, high prices are significantly hurting individuals, who now have less money to spend on their children’s birthdays, or to make home improvements, or to purchase that new car. As food and energy budgets rise, the amount of spending that Americans do in other sectors of the economy must fall in accordance.
As ALG News has been reporting to you, a major steroid of economic downturns is the burden that government poses upon private enterprise, free markets, and the people precisely because it discourages the creation of wealth. Excessive taxes and deficit-spending represent lost opportunities in the economy. And in the Land of Opportunity, the policy of government needs to be in maximizing the potential of economic growth.
Now is the time for pro-growth policies to be enacted at the Federal and State levels of government. Precisely at the time of economic downturn, government needs to send a strong message to businesses that it is not going to punish wealth creation. It can do that by slashing the highest corporate tax rates in the world, making President Bush’s tax cuts permanent, appreciating the dollar, and lessening the burden of Big Government by making significant spending reductions.
With government already hampering the economy, the sharp increase of prices is not welcome to consumers who are already feeling the pinch. As ALG News has reported to you, the Federal government must also seriously reconsider its approaches to energy and monetary policies, which are greatly impacting consumer purchasing power.
What must be understood is that there is indeed a threshold that can be crossed in terms of high prices sinking the economy. It’s happened before in the 1970’s. It’s called stagflation.
ALG Perspective: America is standing at a crossroads, and citizens do not want to hear excuses for why nothing can or will be done, they want to hear practical solutions. If government fails to understand the government-induced causes for soaring prices, then the American people cannot and should not expect any relief in the near term. While it is true that there are factors beyond the control of government which are contributing to the problems, such as increased global demand for commodities, it is also true that there are real, tangible things that the government can do to lessen the pinch being felt.
