The last Daily Treasury Statement for April published yesterday shows just how impressive what is probably the supply-side tax cuts' last hurrah really was:
A couple of days ago I predicted correctly that withholdings would come in a few points ahead of last year and that corporate income tax payments would be flat year-to-year.
But I was wrong about those not-withheld payments of income and employment taxes (What is listed above as "not withheld" also includes a later and relatively small line item in the Daily Treasury Statement called "individual income taxes."). I thought they would come in at least 7% higher, and that 15% was "not out of the question." Well, they came in 16.1% higher.
The significance of this shouldn't be overlooked. As I noted on Tuesday (bold is mine):
.... this not-withheld category consists mostly of final payments that accompany individual 1040s for 2007, plus first-quarter 2008 estimated payments. The increase may not only reflect that entrepreneurs and the self-employed had pretty decent years in 2007, but that many of them are thinking, in the face of relentless media harping to the contrary, that 2008 will be at least as profitable. Estimated payments are supposed to be 25% of last year's total tax bill, unless the taxpayer figures that the current year's tax bill will be lower, in which case they can pay in less. I would think that anyone who could defensibly pay in less, would pay in less.
The fact that April's not-withhelds were so strong makes a case for believing that the folks on the ground running sole proprietorships and S-Corps (corporations whose profits are passed through to shareholders, who then pay individual income tax on their share of reported profits) believe that the economy isn't too bad after all.
The not-withheld numbers also show that the incentive effects of President Bush's 2003 marginal-rate and investment-related tax cuts, contrary to my expectations and those of many others, have survived, at least into early 2008.
Old Media business writers are totally oblivious, as this Google News search for the 30 days ending May 1 on "treasury April receipts" (not in quotes) shows.
David Lawder of Reuters wrote this on Wednesday (bold is mine):
The U.S. Treasury said on Wednesday it will resume issuing 52-week bills after a seven-year break, as budget deficits swell due to slowing revenues and higher spending in a sluggish economy.
At least Lawder mentioned spending. Here's John Brinsley of Bloomberg (bold is mine):
The U.S. Treasury said it plans to sell one-year bills for the first time in seven years as a weakening economy hurts tax receipts and forces the country deeper into debt.As you can see, neither writer names the $117 in fiscal stimulus payments being sent in the coming weeks as major influence on the need to borrow.
They're right, in the sense that April's revenue gusher probably won't last. If it doesn't, it won't be the "sluggish" or "weakening" economy that causes it. The culprit will be the ominously looming federal tax increases. At some point, and it's not too far off, the prospect that the most of the 2001 and 2003 tax changes will be undone -- something that will automatically begin happening in 2009 (to capital gains and dividends) and 2010-2011 (to almost everything else) unless Congress acts to keep the current tax system in place -- will begin to have a dampening effect on investment and growth, which I would otherwise expect to recover nicely in the latter part of this year.
While on the subject: The government is treating the fiscal stimulus payments as negative receipts. This will, in my opinion, skew the numbers Treasury reports in the coming months by artificially reducing reported receipts. Since these payments are not directly-tied refunds of taxes paid (many are getting "rebates" when they paid in no tax, while others who paid lots of tax are getting nothing), I believe the amounts involved should be treated as "spending." This is why I have segregated the $2 billion in checks sent out on Monday, Tuesday, and Wednesday of this week in the chart above.
There is no doubt that April 2008's receipts, on a direct-comparison basis (i.e., ignoring the stimulus payments) set an all-time record; the only question is by how much. That question will be answered when the Treasury Department releases the May Monthly Treasury Statement on May 12.
Cross-posted at BizzyBlog.com.