Posted on 08/11/2005 4:14:36 AM PDT by RobFromGa
I have spent a while looking into this, and if you look at the GDP calculations there are no line items for business consumption. I believe that the business expenses are buried in the personal consumption expenditures numbers.
If you look into how the BEA determines personal consumption you will find they use survey data of individual households not business purchases or sales data.
Sales data is on the production side of the ledger measured separately from the income/expenditure side of the ledger.
You do not find a business expense in the income/expenditure side because that is not what is being measured with GDP which focuses on final consumption and excludes business expenditure to prevent double counting of elements of GDP.
so the GDP doesn't include a large segment of the airline, hotel, office supply, computer and restaraunt industries?
When I use a hotel room, plane ticket or buy a ream of paper, or a computer for work, I am doing a "final" consumption of that item. This is different from making a wholesale purchase of steel, or industrial chemicals which end up going into a later "final" sale.
Sure it does, on the production side.
What it constains on the personal income/consumption side however, is the result of household surveys determining the percentage of household that is applied to those things and much more.
The production account, the business side of the ledger, is measured through business data. The consumer side is measured through household data. That is why there is a differnce between the income/expenditure side and GDP.
National income should equal GDP in theory. In measurement it cannot because the data sources are fundamentally different avoiding the kind of error you invision.
The fact of the matter is that GDP and the Personal Consumption data series actually understate actual national sales and expenditures of the residents of the United States rather than estimate a amounts too large.
Any tax rate based in the personal consumption data is going to be too high rather than too low in its estimate.
You are just barking up the wrong tree on this one.
GROSS DOMESTIC PRODUCT (GDP) The most comprehensive single measure of aggregate economic output. Represents the market value of the total output of the goods and services produced by a nation's economy.
GDP measure production by measure final consumption sales.
It measures National Income by tax records, household survey data and similar sources.
The GDP does not measure business expenditure because that would cause a double count on what GDP is meant to provide, a measure of the value of the economy without double counting of business expeditures which for purposes of accounting are reflected in the sales price of goods and services at retail (i.e. final consumption) level.
The National Income side of the ledger reflects household income and how it is spent for U.S. products and is determined predominately by survey.
The Production side of the ledger, is business sales as reflected in tax records and business accounting data provided to BEA by businesses.
The two measures are fundamentally different and separate providing a check of one against the other. To add business expenditure data anywhere in the NIPA GDP/National Accounts data series would introduce double counting of value of final consumption sales value of the domestic product.
Forget it RFG, you in fundament error in that you do not understand what GDP and the NIPA data series is designed to measure.
What is not measured in the data set is business expenditure. It measures final output of U.S. retail sales reported by business against household income and expenditure in the United States as measured by household reporting and surveys.
GROSS DOMESTIC PRODUCT (GDP) The most comprehensive single measure of aggregate economic output. Represents the market value of the total output of the goods and services produced by a nation's economy.
Taking the Nation's Economic Pulse
Gross Domestic Product (GDP) is the most widely used measure of economic performance around the world. We currently have almost $11T of annual GDP in the U.S. GDP measures the total market value or total spending on all final goods and services produced domestically during a specific period, usually quarters or years.
*** SNIP ***
WHAT COUNTS IN GDP?:
1. Only FINAL goods and services purchased by final users. Only retail sales count, not intermediate (wholesale) goods or transactions. When GM buys steel, tires or transmissions, those transactions don't count because it would be double counting since those expenditures will be accounted for in the final retail price of the car. For example, suppose GM spends $15,000 for a car and sells it to a dealer for $16,000 and the dealer sells it for $17,000. We only count the $17,000 for the final retail sale. We can't count $15,000 + 16,000 + 17,000 = $48,000. Only the value of the final output is counted, and the value of the inputs are not directly counted since their value is reflected in the final purchase price.
Business expenditure is an input!!! and not directly measured.
It seems that RFG did not study the link he was given about the derivation of the revenue neutral percentage required.
This seemed quite clear in that work-up, but you've given a clear explanation, too. My bet is that it may not be accepted.
Tha't the way it generally goes. If information runs counter to a one's conclusion, just demand that there must be some error, and the opponent produce evidence the error does not exist.
Just another way of demanding proof of a negative which provides nothing at all as the negative can never be proved to anyone's satifaction.
Neat way to confuse the issues and try to undermine debate, at least until it is recognized for what it is.
Anyway, glad to see you here to uphold the debate as I need to take off again to the hospital for the rest of the day.
Have fun!!
My question is not about wholesale purchases, I understand that they are not counted, but what about retail purchases that are converted to business use when they are deducted from a business tax return? AS far as the hotel, restaraunt, office supply store or airline these are final retail transactions. It is only after the fact that they become business expenses.
What you describe is the way it works under the income tax; considered as retail purchases, they are counted as retail purchases but if converted to business use then they are no longer reported as retail consumption - per the NIPA and if they are later converted to BE retail consumption they would then show up as reported in that category.
It seems to me that the basic categorization used by the government statistics covers this.
I understand that they are not counted, but what about retail purchases that are converted to business use when they are deducted from a business tax return?
That which is deducted as a business expense (whether it is from retail sources or not) as reported by businesses survey data is not included in "Personal Consumption Expenditure" nor is it counted as part of retail sales data that makes up the GDP side.
Personal Income/Expenditure is derived from a combination of household/individual tax data, Consumer Expenditure Survey data and other statistical sources all providing statistical means for separation of business expense from personal income to establish the most accurate measure of "personal" income possible.
Personal Consumption Expediture measures just personal consumption to the best statistical standard possible.
thanks for answering my question. do you happen to know a link to where they describe the methodology for calculating the Personal Consumption numbers?
do you happen to know a link to where they describe the methodology for calculating the Personal Consumption numbers?
The most comprehensive I have found on the internet by the folks who actually measure income GDP, Income & Expenditure data sets (Bureau of Economic Analysis), provide a copy of their 1990 paper that is expessly about Personal Consumption Expenditure methodology in PDF format. Essentially a scan of their 88 page paper manual into a 2megabyte file for download:
http://www.bea.doc.gov/bea/ARTICLES/NATIONAL/NIPA/Methpap/methpap6.pdf
For a quick overview of what is included in PCE and what it measures see:
The Introduction (pdf page 6), provides a description of PCE which highlights it as a measure of individual and non-profit consumption. and
Table 2 (pdf page 9) details what is excluded from each catagory of consumption in PCE. Purchases for business use being expressly excluded from the sum of PCE.
Of interest to the specific question you ask, the BEA paper states (bottom of pdf page 9)
Purchases of New Goods & Services by Individuals:
- "PCE does not include the business share of autos and other goods and services purchased for a combination of business and personal use."
The detailed sources of each element of PCE are provide in Table 9 (beginning pdf page 18)
Its great for single people.
"Flat tax 17% + FICA 7.65 = 24.65% (32.3% for self-employed)"
Actually the difference between the individual tax vs. the self-employed is the extra 7.65% is hidden as the employer pays this, in effect making the total tax burden the same.
Interestingly when you receive you SS statements periodically, only the portion of the FICA reported on the paycheck is tallied. In effect you only see half of what is contributed in your name.
One among the many deceits in the Income Tax. I, for one, am ready for the end of all payroll taxes. Bring on the Fair Tax.
The best part is all those loonies that complained about the "marriage penalty" get their clocks cleaned by this one.
Its great for single people.
Lets see, today:
2 single persons get 2 single persons worth of personal exemptions and standard deduction under the income tax system and pay tax on the remainder at the same rate as 2 married persons.
2 married persons get 1 1/2 single persons worth of personal exemptions and standard deduction under the income tax system and pay tax on the remainder at the same rate as 2 married persons.
Under the FairTax legislation,
2 married persons pay the same rate of tax at the retail counter as 2 single persons.
2 married persons receive the same sales tax rebate a 2 single persons.
Looks to me where "Its great for single people" the FairTax legislation is also just as great for married people.
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