Improving Economic Data through Data Synchronization Presentation for APDU September 25, 2009 Adrienne Pilot

CIPSEA: Confidential Information Protection and Statistical Efficiency Act Passed in 2002 with Administration and Congressional support. Supported by previous Administration. Confidential Information Protection: – Standardized safeguards to protect confidentiality of information collected by federal agencies for statistical purposes Statistical Efficiency: – Authorized sharing of business data among Census, BLS, and BEA Reduce paperwork burdens Improve economic statistics Increase understanding of the economy

Improve Economic Statistics and Understanding of US Economy Improve the comparability & accuracy of Federal economic statistics by allowing the agencies to – reconcile differences in business lists – develop consistent classifications of businesses into industries – improve coverage Improve the understanding of the U S economy (including key industries and regions), – develop more accurate measures of the impact of technology on productivity growth – enhance the reliability of the Nation’s most important economic indicators, such as the NIPAs

Business List Comparison Project BLS and Census Business Lists – Over 30% of single-establishment businesses had different NAICS industry codes in the two lists – 15% of single-establishment businesses differed at the sector level (e.g., construction, manufacturing, retail trade)

Additional Legislation Needed Census business list – constructed using tax information (such as business name and address) – considered to be commingled with information from IRS Any use of Federal Tax Information beyond tax administration must be authorized in the tax code. Statistical use of some business tax information is authorized for Census and BEA. Not, however, for BLS. Sharing of business data among Census, BLS, and BEA would require legislation to modify the tax code.

Proposed Tax Legislation Data synchronization legislation would provide: – BLS access to Census business data considered commingled with tax information – BEA access to industry data on non-corporate business data (partnerships and sole proprietorships)

Comparability and Accuracy of Federal Economic Statistics Reconciliation of BLS and Census Business Lists – Improved sample frames for surveys BEA access to industry level data for non- corporate businesses (partnerships and large sole proprietorships) – Improved measurement of income – Improved measurement of international transactions

Reconcile GDP and GDI Reduce the statistical discrepancy GDP (Census based) GDI (largely BLS based) Primary measures of national economic activity used in Determining recession or recovery Forecasting budget receipts and expenditures

Real GDP Growth in Key Sectors NAICS Subsector 334 Computer and Electronic Product Manufacturing – During the 2002 economic recovery there was uncertainty regarding the health of the IT sector. – 2002 growth of real value added: o 7.4% (as published; using BLS payroll data) o 15.6 % (using Census payroll data)

Distribution of Federal Funds BEA per capita personal income data (based largely on BLS wage data) are used in the formulas to distribute over $225 billion in Federal funds to States each year (mainly Medicaid). During the State fiscal crisis in 2003, private wage levels based on BLS data were $2.5 billion higher in Texas and $7.1 billion lower in Washington than Census levels.

State and Local Budget Planning BLS and Census measures of wage and salary growth by state sometimes differ by hundreds of millions of dollars. During the early stages of the economic recovery in 2002, these differences would have produced significantly different projections of state and local government income received o $165 million discrepancy in New Jersey o $193 million discrepancy in Massachusetts The $1.2 bill wage growth difference in New York would have yielded a $173 million discrepancy in projected state and local revenue.

Report Recommendations Tax legislation to enable data sharing / data synchronization has been recommended in the following recent reports: 2006 Improving Business Statistics through Interagency Data Sharing National Academies of Science - CNSTAT 2007 Understanding Business Dynamics National Academies of Science – CNSTAT 2008 Innovation Measurement: Tracking the State of Innovation in the American Economy A report to the Secretary of Commerce by the Advisory Committee on Measuring Innovation in the 21 st Century