Surging Tax Revenues Indicate Something's Brewing on the Jobs Front

Earlier came the good news that surging revenues would lower the deficit by perhaps $100 billion or more.

But now comes even more good news. It seems you can't have that kind of blockbuster growth in receipts unless, get this, a lot more people are working for more money than they used to.

This great article puts the surge in tax-revenues into perspective:

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.

In other words, the government was expecting to pay out a lot of money in refunds. She's not terribly clear, there. Or maybe we're just morons.

At any rate....

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.

"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.

In other words, people are making 15 to 20 percent more than they did last year-- huge.

That suggests "we're at the point where (budget) surprises start to run in the other direction. Deficit revisions tend to be massively directional.''

We likes the sound of that.

Regarding the announcement as to how much the Treasury would be borrowing this quarter:

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.

Half? Again, sounds pretty damn good to us.

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.''

Hmmmm... It seems we have two problematic birds, unemployment and the deficit.

And yet we've only got this one stone: Explosive economic growth.

What to do, what to do...?

Wait-- we think we've got an idea! Stand back...! We don't quite know if this is gonna work...!

posted by Ace at 07:21 AM

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