March 12, 2007

US Treasury Results for February: Holding Steady, Big Months to Come

Filed under: Economy,Taxes & Government — Tom @ 2:46 pm

February is historically one of the worst months for receipts to the Treasury, primarily because there aren’t any deadlines for estimated taxes that occur during the month. So it was already a given that there was going to be a deficit; the only question was whether it would be narrower than it was a year ago.

Well, the answer is that’s it’s virtually the same:

TreasRecsDisbs0207

The February 2007 deficit did not show an improvement compared to 2006 as has mostly been the case in previous months (posts relating to January’s report are here and here). But, for those who expected a continuation of the 9%-plus performance of previous months, the 6.6% uptick on the receipts side is actually very good. Here’s why:

  • As explained at the start, February is a light month for receipts. Those that come in are mostly related to payroll and income tax withholding. It’s also the month where astute income tax filers who know they have big refunds coming get their returns in quickly.
  • The big months (e.g., April, June, September, and January) are that way because the more volatile taxes sensitive to supply-side tax cuts (capital gains, dividends, corporate profits) also come in.
  • So the fact that receipts would be up by 6.6%, which is well over twice the rate of inflation, means that the increases in real worker income that are being reported elsewhere (including in the Employment Report last Friday) are, well, very real, and are generating to higher tax collections. Cumulatively, receipts are still up over 9% from fiscal 2006. This is the level that I have previously said will need to be sustained for the budget to get back to what is commonly understood * as “balanced.”
  • As to refunds, this link notes that the average tax refund is up 3.6% to $2,733 and that tax refunds in total are up 5.8% (I’m not clear as to whether these stats reflect returns filed or refunds actually paid out). The point on refunds is that they’re not up radically, meaning that the previous point stands.

The spending side has to be rated as a mild disappointment, but I can’t imagine that anyone thought that the government could keep spending growth at the 1%-plus cumulative level it held at the end of January for the whole year. Taxpayers will indeed be grateful if the cumulative 2.4% increase in spending through the first 5 months holds for the rest of the fiscal year, but I believe that it will come in closer to 4%, or a bit higher.

For those who recall that the deficit through January was down by 57% through four months and wondering why it has dropped to 25% — Remember that February always has a big deficit, and that adding big numbers to the numerator and denominator will do that.

March, when calendar-year corporate estimated taxes that are supposed to settle companies up with Uncle Sam for 2006 are due, and of course April, when almost every individual filer will have to settle up for 2006 (AND make first-quarter estimated payments, if required), will really tell the tale as to whether the federal budget is on track to get back to what is commonly understood * as the break-even point sometime in fiscal 2008.

* – In my opinion this “understanding” is incorrect, because the figures above incorporate the Social Security surplus (i.e., both receipts and disbursements), which I believe should have been left alone. But that hasn’t been the case for decades.

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UPDATE: Dan Clifton at the American Shareholders Association blog points out that the rolling 12-month deficit-reduction performance continues to improve.

UPDATE 2: AP’s report wasn’t all that bad. What’s in the water in Washington (the story source byline)? Whatever it is, don’t stop putting it in. UPDATE 2A: Obviously not everywhere (HT NewsBusters), especially with the headline.

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