October 16, 2009

Latest Pajamas Media Column (‘Seeing Red [Ink]‘) Is Up

Filed under: Economy,Taxes & Government — Tom @ 12:32 pm

http://i739.photobucket.com/albums/xx40/mmatters/red_ink(This post, originally published at about 8:30 this morning, was carried to the top after the Update below was completed.)

It’s here.

It will go up at BizzyBlog on Sunday morning (link won’t work until then) after the blackout expires.


UPDATE: I made some key points in the second and third Lucid Link items earlier this morning.

What follows extend what I addressed in the column about the decline in withholdings.

Let’s first go back to the origins of the overall slide in collections.

Corporate tax collections were the first to decline. This actually began happening to a relatively modest degree during the fourth quarter of 2007, when such collections decreased 6.3% from 4Q06. Even during 2Q08, a quarter that included April’s all-time collections record (which I have been calling the “Supply Side Stunner” since just before it became official), year-over-year corporate collections were down 14.1%. In the most recent two quarters, they’re down year over year by 57.3% and roughly 38% (pending issuance of the September 2009 Monthly Treasury Statement, which is officially very late), respectively.

Individual payments of estimated taxes, up year-over-year by over 5% in 2Q08, are what drove the “Supply Side Stunner” referenced in the previous paragraph. These didn’t actually begin to decline until 4Q08, and then only by less than 2%. But they cratered during the first half of this year; 2Q09, by far the biggest quarter for this category, came in a shocking 35% lower than 2Q08.

That brings us to withholdings. They shouldn’t decline, as long as people stay employed and are getting at least modest pay increases, so they were the last to go negative. Here is their track record for the last eight quarters (these percentages, including 3Q09′s, are sourced to the Daily Treasury Statements, and shouldn’t be subject to any surprises that might appear in September 2009′s monthly statement):

+8.8% — Quarter ended December 31, 2007 (4Q07)
+1.8% — Quarter ended March 31, 2008(1Q08)
+2.7% — Quarter ended June 30, 2008 (2Q08)
+2.8% — Quarter ended September 30, 2008(3Q08)
-2.0% — Quarter ended December 31, 2008 (4Q08)
-5.8% — Quarter ended March 31, 2009 (1Q09)
-9.3% — Quarter ended June 30, 2009 (2Q09)
-10.1% — Quarter ended September 30, 2009 (3Q09)

The PJM column covered the decline in the most recent quarter, but as you can see, the one before it was almost as bad. You would not expect such steep year-over-year declines to happen when the year-over-year average quarterly unemployment rate has “only” increased by about 3.5%.

But, as stated in the column, these declines are happening, for three reasons:

  • Many formerly high earners are earning much less.
  • Those still working are working fewer hours.
  • Probably less important and not directly related to labor, many investors taking retirement plan distributions are having less money withheld from them.

The positive percentages for withholding collections through the third quarter of 2008 also happen to support my long-held contention that we were NOT in a recession until real GDP began a string of consecutive declines in the third quarter of 2008.

Both the CBO and the White House seem to think that collections will rebound to large degrees in the coming years, and will actually reach $3 trillion by 2012. As long as unemployment stays where it is (most observers both within and outside the Obama White House think it will either do that or get worse for quite a while), and as long as this administration lets taxes increase next year while attempting to impose cap and trade and statist health care, I don’t see how that will happen.

Given the policies this administration is pursuing, I think it’s more likely that collections will continue to decline further by relatively small percentages, and that we’ll have to be quite lucky to see them stay the same or increase slightly.


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