adios
05-04-2004, 11:37 AM
Is good news for the US labor force bad news for Kerry? If things are truly turning around in the labor markets I would think that it is bad news for Kerry.
Withholding Taxes Point to Labor-Market Revival (http://quote.bloomberg.com/apps/news?pid=10000039&cid=baum&sid=aOpWi.xFJeMM)
Withholding Taxes Point to Labor-Market Revival: Caroline Baum
May 4 (Bloomberg) -- Budget analysts were expecting a windfall of tax refunds this year as cuts in marginal tax rates, retroactive to January 2003, caused an over-withholding of income.
They were disappointed. What they got instead was a surge in withheld personal income tax payments in recent months, a sign that something is brewing in the labor market.
Individual withheld employment taxes account for about 40 percent of the federal government's total receipts. Because taxes are actual cash payments to the Treasury -- no surveys, no model- based forecasts, no statistical extrapolations -- they provide a kind of check and balance on what's going on in the labor market, which for most of us is the primary source of income.
The current perception that the labor market is weak and income growth lousy is being challenged by recent tax data, according to Chris Wiegand, an economist at Citigroup Global Markets.
``Given the tax cuts, the tax liability should have been down a lot,'' a result of bigger refunds and smaller final payments, Wiegand said.
Instead, refunds are running 8.3 percent ahead of last year, half the expected pace, and final payments are about $2 billion dollars below last year with a small number of returns still to be processed, Wiegand said.
As Withholding Goes...
``Were it not for the tax cut, April final payments would have been up about 15 to 20 percent from last year,'' said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. That suggests ``we're at the point where (budget) surprises start to run in the other direction. Deficit revisions tend to be massively directional.''
What's more, there's been a surge in withheld income taxes in the last two months.
``As the withholding story goes, so goes the revenue side of the budget ledger,'' Wiegand said.
And that's the second part of the story. The 2004 federal budget deficit, which is forecast at $477 billion by the Congressional Budget Office and $521 billion by the Office of Management and Budget, could come in at $370 billion, or 3.1 percent of gross domestic product, according to a new Citigroup forecast.
The Treasury confirmed its improving fiscal position yesterday when it announced plans to borrow a net $38 billion in the April-to-June quarter, half the amount estimated three months ago.
Inconsistency
``The decrease in borrowing is due to higher receipts, both from lower refunds and higher payroll and individual taxes, lower outlays, and higher State and Local Government Series net issuances,'' the Treasury said in announcing its second-quarter borrowing requirements.
Actual borrowing in the January-to-March quarter was about $30 billion less than anticipated, ``largely attributable to lower tax refunds and higher payroll taxes,'' Treasury said.
But back to the implications for the labor market. In the last two months, ``withheld receipts jumped 12.5 percent annualized,'' Wiegand said. ``The message is, there is no way that you can see withheld income taxes rising unless there's a decisive turn in labor market conditions, including payrolls, hours and compensation.''
The refund story and final tax payments aren't as straightforward as withholding taxes, according to Doug Lee, president of Economics From Washington in Potomac, Maryland.
``We really don't know how many people got caught by the AMT,'' or alternative minimum tax, Lee said. ``But the withholding portion is strong. So is wage and salary growth. Both are inconsistent with the payroll data.''
Good Is Bad
Personal income rose 4.9 percent in the year ended March compared with the recent low of a 1.55 percent annual increase in January 2002. After-tax income adjusted for inflation rose 4 percent in the past year compared with a 0.7 percent increase in June 2001.
So why all the chatter about tax refunds being disappointing, and lower refunds providing less economic stimulus?
Refunds certainly are disappointing for anyone who expected to receive one, only to learn from her accountant the federal government would be sharing it with her in the form of the AMT.
In a closed universe, where tax refunds are the only form of income, yes, lower refunds mean less stimulus.
In the real world, if refunds are smaller because income -- and the tax liability -- is higher, that isn't a negative.
Inner Strength
In addition to seeing refunds as disappointing, even in the face or rising income, this school of thought argues that without constant stimulus -- reductions in interest rates, tax cuts, tax refunds or an increase in mortgage refinancing -- the economy will roll over and die. In other words, an IV drip is required all the time.
Whatever happened to the idea of a ``self-sustaining'' recovery? In this world, businesses are investing for the future, producing and hiring; consumers are working and spending. One person's spending becomes another person's income. Growth becomes its own stimulant, without constant exogenous infusions.
The recent rebound in withheld taxes is an inkling self- sustenance may be at hand.
``This type of move suggests something real is happening on the labor front,'' Wiegand said. ``And you need high wage jobs to see this type of upturn in the tax base.''
Withholding Taxes Point to Labor-Market Revival (http://quote.bloomberg.com/apps/news?pid=10000039&cid=baum&sid=aOpWi.xFJeMM)
Withholding Taxes Point to Labor-Market Revival: Caroline Baum
May 4 (Bloomberg) -- Budget analysts were expecting a windfall of tax refunds this year as cuts in marginal tax rates, retroactive to January 2003, caused an over-withholding of income.
They were disappointed. What they got instead was a surge in withheld personal income tax payments in recent months, a sign that something is brewing in the labor market.
Individual withheld employment taxes account for about 40 percent of the federal government's total receipts. Because taxes are actual cash payments to the Treasury -- no surveys, no model- based forecasts, no statistical extrapolations -- they provide a kind of check and balance on what's going on in the labor market, which for most of us is the primary source of income.
The current perception that the labor market is weak and income growth lousy is being challenged by recent tax data, according to Chris Wiegand, an economist at Citigroup Global Markets.
``Given the tax cuts, the tax liability should have been down a lot,'' a result of bigger refunds and smaller final payments, Wiegand said.
Instead, refunds are running 8.3 percent ahead of last year, half the expected pace, and final payments are about $2 billion dollars below last year with a small number of returns still to be processed, Wiegand said.
As Withholding Goes...
``Were it not for the tax cut, April final payments would have been up about 15 to 20 percent from last year,'' said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. That suggests ``we're at the point where (budget) surprises start to run in the other direction. Deficit revisions tend to be massively directional.''
What's more, there's been a surge in withheld income taxes in the last two months.
``As the withholding story goes, so goes the revenue side of the budget ledger,'' Wiegand said.
And that's the second part of the story. The 2004 federal budget deficit, which is forecast at $477 billion by the Congressional Budget Office and $521 billion by the Office of Management and Budget, could come in at $370 billion, or 3.1 percent of gross domestic product, according to a new Citigroup forecast.
The Treasury confirmed its improving fiscal position yesterday when it announced plans to borrow a net $38 billion in the April-to-June quarter, half the amount estimated three months ago.
Inconsistency
``The decrease in borrowing is due to higher receipts, both from lower refunds and higher payroll and individual taxes, lower outlays, and higher State and Local Government Series net issuances,'' the Treasury said in announcing its second-quarter borrowing requirements.
Actual borrowing in the January-to-March quarter was about $30 billion less than anticipated, ``largely attributable to lower tax refunds and higher payroll taxes,'' Treasury said.
But back to the implications for the labor market. In the last two months, ``withheld receipts jumped 12.5 percent annualized,'' Wiegand said. ``The message is, there is no way that you can see withheld income taxes rising unless there's a decisive turn in labor market conditions, including payrolls, hours and compensation.''
The refund story and final tax payments aren't as straightforward as withholding taxes, according to Doug Lee, president of Economics From Washington in Potomac, Maryland.
``We really don't know how many people got caught by the AMT,'' or alternative minimum tax, Lee said. ``But the withholding portion is strong. So is wage and salary growth. Both are inconsistent with the payroll data.''
Good Is Bad
Personal income rose 4.9 percent in the year ended March compared with the recent low of a 1.55 percent annual increase in January 2002. After-tax income adjusted for inflation rose 4 percent in the past year compared with a 0.7 percent increase in June 2001.
So why all the chatter about tax refunds being disappointing, and lower refunds providing less economic stimulus?
Refunds certainly are disappointing for anyone who expected to receive one, only to learn from her accountant the federal government would be sharing it with her in the form of the AMT.
In a closed universe, where tax refunds are the only form of income, yes, lower refunds mean less stimulus.
In the real world, if refunds are smaller because income -- and the tax liability -- is higher, that isn't a negative.
Inner Strength
In addition to seeing refunds as disappointing, even in the face or rising income, this school of thought argues that without constant stimulus -- reductions in interest rates, tax cuts, tax refunds or an increase in mortgage refinancing -- the economy will roll over and die. In other words, an IV drip is required all the time.
Whatever happened to the idea of a ``self-sustaining'' recovery? In this world, businesses are investing for the future, producing and hiring; consumers are working and spending. One person's spending becomes another person's income. Growth becomes its own stimulant, without constant exogenous infusions.
The recent rebound in withheld taxes is an inkling self- sustenance may be at hand.
``This type of move suggests something real is happening on the labor front,'' Wiegand said. ``And you need high wage jobs to see this type of upturn in the tax base.''