United States

The U.S. economy is marked by resilience, flexibility, and innovation. In the first decade of the 21st century, the economy was able to withstand a number of costly setbacks. These included the collapse of stock markets following an untenable run-up in technology shares, losses from corporate scandals, the September 11 attacks in 2001, wars in Afghanistan and Iraq, the devastation of Hurricane Katrina along the Gulf Coast near New Orleans in 2005, and the punishing economic downturn that became widely known as the Great Recession, which officially dated from December 2007 to June 2009 and was caused in part by a financial debacle related to subprime mortgages.

For the most part, the U.S. government plays only a small direct role in running the country’s economic enterprises. Businesses are free to hire or fire employees and open or close operations. Unlike the situation in many other countries, new products and innovative practices can be introduced with minimal bureaucratic delays. The government does, however, regulate various aspects of all U.S. industries. Federal agencies oversee worker safety and work conditions, air and water pollution, food and prescription drug safety, transportation safety, and automotive fuel economy—to name just a few examples. Moreover, the Social Security Administration operates the country’s pension system, which is funded through payroll taxes. The government also operates public health programs such as Medicaid (for the poor) and Medicare (for the elderly).

In an economy dominated by privately owned businesses, there are still some government-owned companies. These include the U.S. Postal Service, the Nuclear Regulatory Commission, Amtrak (formally the National Railroad Passenger Corporation), and the Tennessee Valley Authority.

The federal government also influences economic activity in other ways. As a purchaser of goods, it exerts considerable leverage on certain sectors of the economy—most notably in the defense and aerospace industries. It also implements antitrust laws to prevent companies from colluding on prices or monopolizing market shares.

Despite its ability to weather economic shocks, in the earliest years of the 21st century the U.S. economy developed many weaknesses that pointed to future risks. The country faces a chronic trade deficit; imports greatly outweigh the value of U.S. goods and services exported to other countries. For many citizens, household incomes have effectively stagnated since the 1970s, while indebtedness reached record levels. Moreover, many observers have pointed to an increasing gap in income disparity between the small cohort at the top of the economic pyramid and the rest of the country’s citizens. Rising energy prices made it more costly to run businesses, heat homes, and transport goods and people. The country’s aging population placed new burdens on public health spending and pension programs (including Social Security). At the same time, the burgeoning federal budget deficit limited the amount of funding available for social programs.

Taxation

Nearly all of the federal government’s revenues come from taxes, with total income from federal taxes representing about one-fifth of GDP. The most important source of tax revenue is the personal income tax (accounting for roughly half of federal revenue). Gross receipts from corporate income taxes yield a far smaller fraction (about one-eighth) of total federal receipts. Excise duties yield yet another small portion (less than one-tenth) of total federal revenue; however, individual states levy their own excise and sales taxes. Federal excises rest heavily on alcohol, gasoline, and tobacco. Other sources of revenue include Medicare and Social Security payroll taxes (which account for almost two-fifths of federal revenue) and estate and gift taxes (yielding only about 1 percent of the total).

Labour force

With an unemployment rate that returned to the traditional level of roughly 5 percent per year following the higher rates that had resulted from the Great Recession, the U.S. labour market is in line with those of other developed countries. The service sector accounts for more than three-fourths of the country’s jobs, whereas industrial and manufacturing trades employ less than one-fifth of the labour market.