Withholding Tax Stronger Than BLS Employment
The January employment data as reported by BLS was pretty punk — only 36k new jobs created, and half a million people leaving the labor pool. Some were quick to blame the weather, others blamed BLS’ models for failing to confirm other leading indicators.
This morning, lets take a look at What Matt Trivisonno is seeing over at his Withholding-Tax data crunching site, The Daily Jobs Update. According to Matt, Withholding-Tax Collections seem to be unfazed by either the new tax cut or by the soft labor market.
Consider the following: With the substantial Social Security tax-cut in effect for 2011, we should expect withholding-tax collections to decline. However, that has not been the case. W/H tax collections have actually increased a little bit over the year-ago period:
First 21 business days of 2010: $167,171,000,000
First 21 business days of 2011: $167,367,000,000
The only way this could happen is if there were quite a lot more workers on payrolls than there were last year at this time. Note that we saw the same thing occur after the Bush tax cuts were enacted in 2003 — tax collections did not decline because the economy was already expanding.
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2001 versus 2010 Withholding Tax Reciepts
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Bush Tax Cuts and Withholding Tax Growth
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Not only does the jobs situation look like it is continuing to improve, but the public is coming back into the stock market. After a massive, “Flash Crash” induced outflow of funds from mutual funds that invest in US stocks, money has been flowing back in for three weeks now.
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Weekly Fund Flows
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Companies had until January 31st to implement the changes to withholding, so it should be fully in place by now. I don’t think it is possible to know how quickly it was phased in. I have never seen the IRS publish any stats on that sort of thing.
Since I sent the original email, two more strong data-points have come in, and 2011 collections are now $1.982 billion ahead of 2010. It’s pretty remarkable.
Tax collections day-by-day, comparing the first 23 days of last year to this year.
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Total Tax collections
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February 7th, 2011 at 11:38 am
as a note of personal experience, we planned to take the “tax cut” (which would have been about $900 for the year) and increase her 401 contribution for ’11, but we’d wait until she received her first check to verify the amount; however, when the first full check came her net increase was only $6! the federal w/h was increased (not by us). thanx for the tease barry (bho).
February 7th, 2011 at 11:46 am
you know, and i know, and everyone who’s “in the know” knows that when the Joe Blow start investing in the market, that’s when the pros start inching toward the exits. By the time there’s several months of MM inflows (and QE2 all but complete) we’ll have another crash. If for no other reason but to drive down commodity prices one more time.
February 7th, 2011 at 11:52 am
“The only way this could happen is if there were quite a lot more workers on payrolls than there were last year at this time.”
Uh no, many companies, like IBM told their employees the reduction would not take place until the end of the month becuase they received the new charts from treasury too late to be in effect the FIRST 21 DAYS.
I would think that it would take more than this little observation to says employment has increased. But hey, if you are a bull looking for the green shoots, there you go.
February 7th, 2011 at 11:55 am
@jeff in indy – Lower-income taxpayers will be paying more this year because the $400 “Making Work Pay” tax-credit from 2009 and 2010 was allowed to expire. Only people making more than $20,000 will see their withholding reduced.
February 7th, 2011 at 12:00 pm
Matt’s right. I sent out a memo to our employees explaining that some of them would see a lower net paycheck despite what they may have heard about how “extending the Bush tax cuts” and the decrease in Social Security withholdings would increase their paycheck.
February 7th, 2011 at 12:02 pm
@ matt: she certainly makes more than that. guess we’ll see if mr. me’s comment is correct.
February 7th, 2011 at 12:10 pm
Wait a minute…
I thought that was just a BS republican talking point: “tax cuts = increased revenue”, just one more thing about which republicans are completely FOS?
Earlier, here: http://www.ritholtz.com/blog/2010/09/about-those-expiring-tax-cuts/
you said this: “the most informative and intelligent thing you will read about the tax cut expiration debate this entire year”
about Dan Gross saying “The bold and confident assertions made about the links between tax rates and economic growth, market performance, and prosperity are almost certainly wrong. … The people who designed the current, unsustainable tax system promised us that lower marginal rates, and lower taxes on capital and dividends, would boost the economy, promote investment, create jobs, spur market performance, and raise everybody’s income. They were wrong. ”
Yet this post in combination with your WaPo article seems to be saying the exact opposite, that the tax cuts have a causal relationship to increased revenue flows to the treasury.
What gives?
~~~
BR: Any liquidity boosts the economy/market, at least temporarily . . .
February 7th, 2011 at 12:10 pm
There could also be a large bonus effect here. In our firm, 2009 equalled minimal bonuses. 2010 was a better year so bonuses paid out in Jan. It accelerates both withholding and Social Security payments.
February 7th, 2011 at 12:12 pm
@me
“many companies”? If you have a reference for that, I would like to see it.
February 7th, 2011 at 12:37 pm
“The only way this could happen is if there were quite a lot more workers on payrolls than there were last year at this time”
OR…….the same number of people are working LONGER hours…. I don’t see how that statement could make any sense at all.
And for the record…..lst year…no bonuses at the company. This year, minimal…. I bet A LOT of companies saw the same thing. To make assumptions based on the first few weeks is just assinine. But….everyone go buy the fucking dip.
February 7th, 2011 at 12:47 pm
@Steven Donegal
From what the Wall Street Journal has reported, it looks like banker bonuses will be $7 billion higher this year. How much of that will be withheld? We can only guess because we don’t know the tax-bracket breakdown of all the employees, but even if it were 50%, that would only be $3.5 billion more than last year. And if you spread that out over three months, January to March, when bonuses are paid, it wouldn’t be enough to make much of a dent in the charts. $1.2 billion per month either way is almost a rounding error for the withholding data.
The USA’s economy is still gargantuan. Last year, people thought that the Census Bureau’s massive army of temporary workers would impact withholdings. But if you run through the numbers, even that was barely a blip.
And of course, banker bonuses wouldn’t be at record levels if the economy wasn’t stronger than it was last year at this time.
February 7th, 2011 at 1:06 pm
@curbyourrisk
You wrote: “To make assumptions based on the first few weeks is just assinine.”
The second chart above shows more than a “few weeks”.
Over the past year, many people like you have disputed the trend in withholding-tax collections. And if you bet that way in the stock market, you are road-kill right about now.
So, who’s the ass?
February 7th, 2011 at 1:07 pm
@ Matt: “And of course, banker bonuses wouldn’t be at record levels if the economy wasn’t stronger than it was last year at this time.”
I can only hope that was a tongue in cheek statement. I can’t believe anyone commenting here on Mr. Barry’s blog would be that outlandishly stupid.
February 7th, 2011 at 1:08 pm
Whad’ya know.
Withholding tax revenues actually increased after the Bush tax cuts for the evil rich.
Could it possibly happen again?
February 7th, 2011 at 1:12 pm
How does the 4.2% vs 6.2% factor in here? I see “collections” being used in these charts, so I’m inclined to believe- one way or another- that difference is not being factored.
February 7th, 2011 at 1:13 pm
@ Matt Trivisonno
Company email (private) and the problem is defined here:
http://www.mainstreet.com/print/19943
exerpt: Kathy Pickering, executive director of the Tax Institute at H&R Block, notes, “It’s not just a matter of, flip a switch and you’re ready to go.”
Starting next week, Bolek’s company must begin to cut January 2011 paychecks for some clients. Because his firm lacks the updated withholding tables, the January checks will probably be processed using the old 2010 tables.
That means too much money could be taken out of many workers’ paychecks. Once the new tables are out, refunds would be made to the affected workers.
“People are anxious,” says Dennis Danilewicz, senior director of payroll services at New York University’s Langone Medical Center and past president of the American Payroll Association.
If employers don’t have the withholding tables by Monday, Danilewicz predicts, “it will be the third paycheck of the year before people will get their correct take-home pay.”
February 7th, 2011 at 1:15 pm
@ Matt: Sorry…fundamental anaylst here. I just can’t trade what you know is false. I don’t give a shit what any analyst out there says or does. I do my own research and time and time again, I come up with different numbers. Thats the funny thing about math. Everyone can be right about the same thing. I chose to use REAL data in my runs, not made up BS distributed by the Government PUMP machine. Who’s the ass? I guess that would be the person who believes the governemnt and gets caught holding the bag in the end. I am not playing their game. I am chosing to pay down my debts instead. I just can’t blindly buy the dip, no matter how much backing the government has of you. eventually, he walks away. Have fun getting out when he AIN’T there to back you. ANYONE WHO BELEIVES the economy is FUNDAMENTALLY stronger…..is sorrily mistaken. Barry’s right…there aer a thousand different reasons to buy a market….and this one is all about sentiment. The purpsoe of the BS numbers are to beef up sentiment. make them beleive things aer better and “presto” things are better. But the stocks….keep buying the stocks. If the market goes high enough…EVERYONE BELIEVES.
fundmentals….are not the reason to buy this MARKET. Yet…you can buy individual stocks…BUT NOT THE MARKET.
February 7th, 2011 at 1:17 pm
Let me ask you 1 question. Do you buy the market if the government gets out of everything and let’s the market operate accodingly to what the market is worth????????
Go ahead…answer that one.
February 7th, 2011 at 1:54 pm
@curbyourrisk,
Every day, companies send payroll taxes into the federal government. Every day, the Treasury Department publishes the amount. The data is not made up.
The second chart above shows the business cycle derived from that data. The stock market makes the same pattern.
The cycle is the cycle and it doesn’t care what your opinion of it is. If you want to fight the cycle, I wish you luck.
February 7th, 2011 at 2:00 pm
@me
Your link points to a news report from last year. It contains zero information about how many companies have implemented the changes.
December 2010 withholding collections were up 9.68%, year-over-year. January 2011 was flat. If you want to believe that drop was caused by mass layoffs, go right ahead. I prefer to attribute it to the tax cut.
February 7th, 2011 at 2:06 pm
Matt…I will ak the question 1 more time.
Do you buy the market if the government gets out of everything and let’s the market operate accordingly to what the market is worth????????
Go ahead…answer that one.
February 7th, 2011 at 2:08 pm
@Bokolis
I don’t know what you mean. Social Security taxes are a component of withholding-tax revenue. They are not collected separately.
February 7th, 2011 at 2:11 pm
@curbyourrisk
“Gets out of everything”? That’s a bit vague, don’t you think?
February 7th, 2011 at 2:30 pm
@wannabe,
The second chart above shows that the economy had already turned the corner before the tax cuts went into effect in 2003. Right? It’s a cycle.
Of course, the Bush Tax Cuts came in two parts. On the chart, I didn’t show the first tranche from June 2001:
http://en.wikipedia.org/wiki/Economic_Growth_and_Tax_Relief_Reconciliation_Act_of_2001
Did that tax cut cause the economic plunge over the next year? No, the cycle had already turned down.
Tax revenues will very likely be higher in 2011, but given the strength of the trend at the end of 2010, that was going to happen anyway regardless of what changes were made to tax rates – just like last time.
February 7th, 2011 at 2:33 pm
What about the disconnect of all those out of work, migrant construction and low-pay workers who are drawing state benefits, but don’t, and never did, pay into the system to begin with? I’m inclined to believe that payrolls are indeed inching up, ever so slightly. Not enough to keep up with all the poor souls still out of work.
Fate is a bitch. This time 2 years ago, my wife and I were expecting our second child, and making plenty of bank. 6 months later, we’re both out of work sitting at home with a bored 9 year old and screaming newborn, living off severance. Didn’t actually have to dip into savings, praise Jesus®!
Now, two years on, I’m not only working at a job paying a bit more, but I’m being offered a job paying 20% more than that, and trying to decide what to do. Not gloating, but rather, marking the sad irony of the American worker.
February 7th, 2011 at 2:35 pm
If the government stops supporting commodity pricing, equity pricing, bond purchases, bank balance sheets, all the unemployed that have been on the doll for longer than 26 weeks, stops allowing banks to run at a deficit and not closing them down in a timely fashion forcing the FDIC to incur much larger losses when they actually do it, forcing the FASB to never allow honest account (mark to market).,…… you know, all that “stuff”.
If they actually stopped intervening…….what would the market be worth??? OR…should I say…HOW LOW WOULD IT GO????
I will await your response.
February 7th, 2011 at 2:38 pm
I would be wary of attempting real-time on-the-fly analysis based on this single datapoint. Matt, do we know for sure that major employers used the 2011 withholding tables (revised) in January? If not, there may need to be payroll withholding adjustments this month and next. The tax-cut act passed late in the year as the WSJ reported at the time:
http://online.wsj.com/article/SB10001424052748704689804575535861229293800.html
I’m not challenging your ongoing documentation of gov’t withholding collections, just wondering whether we’ll see a corresponding drop when the Feb. numbers are released, so maybe a tad premature.
February 7th, 2011 at 2:42 pm
The Fed is supporting the markets through their OMOs. They said they would, and they are. For how long is anybody’s guess. But it will end. When it does, the markets will correct, and another bubble will burst (there will, once again, be gnashing of teeth and lamentations across the land). You can buy into the Fed’s bubble, and make some money (same as some did in the dotcom and RE bubbles). You can also lose your shirt, as with any other wager (same as many did in the dotcom and RE bubbles).
Tax collections aside (as if any data can be trusted at this point), we have a seriously crippled and corrupt banking/pseudo-government/economic system that will not provide meaningful job or wage growth for the vast majority of Americans, for the foreseeable future.
February 7th, 2011 at 2:45 pm
Withholding is not a very reliable indicator of compensation; it fell further than compensation did during the recession, and now it is rising faster. The problem, of course, is that we have a progressive tax, so withholding is not a linear function of compensation (see all the bonus comments above). And of course, the link from compensation to employment is also far from direct. So no, the rapid rise in withholding does not mean a jump in employment.
http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2011:01:20-don_t_try_to_deduce_too_much_from_withholding_data
February 7th, 2011 at 2:53 pm
Buy at 1500, sell at 700, buy back at 1300…
I don’t know what Wall Street is thinking, but I get the feeling that they have no sense of self-preservation.
When this bubble bursts the backlash could basically shutdown and liquidate the industry.
February 7th, 2011 at 2:53 pm
curbyourrisk, wow. Just wow. I’ll answer it for you…the government will always be involved in some markets whether under the heading of regulation, price supports (farming), tax breaks, mortgage “guarantees”, tax deductions (for mortgages), or any other number of functions from the money you pay for gas to the price it costs to get into a National Park.
So, honestly, what does your comment mean? Nothing. Why don’t you deal with reality and not with your belief in what it should be? Because you don’t do economics or even investing with what you WISH for, but a known and real data series as it is. They are called FACTS. You can interpret them as you will, and that’s why there is always someone to take the other side of your trade. When more people take the other side of your trade, and make out better, then it’s time to reassess your reality.
February 7th, 2011 at 3:03 pm
@Matt Trivisonno Says:
“And of course, banker bonuses wouldn’t be at record levels if the economy wasn’t stronger than it was last year at this time.”
Spoken like a banker… Since when do banker bonuses correlate to the economy and not to government handouts? See there is our problem, a segment of society with a over sized ego that produces nothing and leaches everything…
February 7th, 2011 at 3:07 pm
Yeah, that was a bit of an insular statement by Matt. Bankers get bonuses when banking is going well, which may or may not reflect the broader economy. For example, lending remains down. I suspect 2010 revenues continued to be generated from proprietary investments rather than “traditional core banking.”
February 7th, 2011 at 3:24 pm
“The cycle is the cycle and it doesn’t care what your opinion of it is. If you want to fight the cycle, I wish you luck.”
Hard words. Parole che triturano.
At the end of the 15th century as the Catholic monarchs (moidering scum that they were) were consolidating their control of the Iberian peninsula, one of the bright ideas that instituted was imposing on the Jewish communities (aljamas) a choice bewteen conversion and expulsion. Those that converted (los conversos) often times maintained their fidelity to their Judaism (52 centuries are not laid down so easily). As the Spanish expanded into the New World, some conversos managed to leave and head for places like Lima- unfortunately, the Inquisition followed them. Many fled to Bolivia in the late 1500s & early 1600s (La Paz, Potosí, etc), but the reach of that obscene institution found them out there. Others fled even further (some coming from La Plata area with Ñuflo de Cháves) and they settled in the area of Santa Cruz de la Sierra in the mid 1600s.
Jumping ahead 300 years, at the end of WWII, the Vatican negotiated with Allied forces to allow the Nazi collaborators among the Croatians to emigrate. They settled in, you guessed it, Santa Cruz. If you look at the new layout of the city, it looks exactly like a net.
So back to cycles, curbyourrisk, this is a vicious cycle, it will be long-lasting and it is casting a wide net. I fear there is no escape. Many understand your outrage, but waving the truth around attracts the attention of the Dataria. Charles Peguy said something about blurting out the truth to avoid being allied with forgers and liars and such, but they paid him with the same coin that José Martí received.
“Blessèd are those whom a great battle leaves
Stretched out on the ground in front of God’s face, “- perhaps. But then again, he didn’t understand that there individuals among us who long to lay out beyond millions before God’s face.
February 7th, 2011 at 3:29 pm
Of course, we can see a similar analysis from Matt (March 2010) titled: “Payroll Withholding Taxes Surge in March”. A more interesting look (IMO) came from a blogger @seeking alpha: “Are Federal Withholding Taxes Rising or Falling?”.
http://seekingalpha.com/article/199240-are-federal-withholding-taxes-rising-or-falling
He makes the point that SS and Medicare taxes would be better indicators than tax withholding. I think he is correct specially when it comes to its relationship to employment.
February 7th, 2011 at 3:33 pm
econimonium……What would the market be worth if BEN stopped playing the games? Go ahead. answer my question.
How did the market ever function without the Fed’s support? How did the Treasury ever operate without the FED buying their notes? Please…enlighten me…..
Go ahead and spew some trap about how the FED is only doing what they are supposed to do….
February 7th, 2011 at 3:36 pm
No single data point sustains what Barry is saying about employment growth.
Rather, there are *multiple* data points sustaining his claim. The ISM manufacturing and services indicies both included strong employment components, as even Boockvar has pointed out. Retail sales were much stronger than anyone had anticipated. UI claims spiked 54000, and then they plunged 50000 two weeks later. WH tax receipts are up marginally yoy.
And out of all this data showing stronger than believed employment growth, we have a single, solitary, notoriously volatile data point showing weaker job growth.
When 9 out of 10 weathermen say it’s hot outside…it’s hot outside.
February 7th, 2011 at 3:47 pm
@franklin411 Says:
February 7th, 2011 at 3:36 pm
“No single data point sustains what Barry is saying about employment growth.”
And since things are so rosy with the economy why is that we have this?: “43 Million Americans Now Receiving Food Stamps, a 14% Increase”
February 7th, 2011 at 3:52 pm
@Robespierre
SS and Medicare taxes are not collected separately from withholding taxes. They all arrive at the Treasury Department in one lump. A company does not make three payments when they send in their payroll taxes. They make one. That number is reported on the Daily Treasury Statement. SS and Medicare tax “collections” cannot be used to get a real-time view of the economy.
February 7th, 2011 at 3:54 pm
When 9 out of 10 people predict rain and it doesn’t rain..should I walk under an umbrella anyway?????
The ISM manudfacturing report. the one that showed input costs at 81.5%? How the hell is that sustainable. Those costs need to be either passed on to customers…..or no one gets hired. Since NO ONE has the money to buy higher priced goods right now I would bet that HIRING does not occur due to the most recent ISM figures.. There is NO WAGE growth. I would like to point out that JOBS are not the answer (sorry to all those looking for jobs). The answer is higher wages for those currently working. You create higher wages for those currently employed and they will spend accordingly. That creates demand…that creates necessity for hiring. Retial sales were much stronger than expected…and if you look at the most recent credit report (consumer spending) released about an hour ago…you saw a big increase in credit card debt. That is horrible. People are taking or more debt loads, while not getting a decent wage. Yeah…thats productive. That will end well.
It is what Ben wants and needs though….just keep the ponzi going a little longer…….and longer and longer… Madoff had nothing on our current maestro!
February 7th, 2011 at 3:58 pm
@Arequipa01
The business cycle is more like a force of nature than it is religious persecution. I was just telling the guy not to jump into the volcano because he thinks it is “wrong” for the lava to be hot. A cyclical bull market within a larger secular bear market will flatten short-sellers just as good as secular bull.
February 7th, 2011 at 4:05 pm
No one has answererd the question….where would the market trade if the government pulled its support????
@Matt – I believe it is Ben Bernanke and the leaders of Europe who have targeted every short seller out there. AND, I believe the Eruropeans leaders actually dared people to short their marekts. What the hell is that???
February 7th, 2011 at 4:08 pm
The Treasury Department just released Friday’s withholding-tax number: $8.489 billion.
That brings last week’s total to $46.352 billion.
The total from the corresponding week a year ago was $42.603 billion.
It’s up 8.8%! With a tax cut!
It’s only five data points, but if you don’t think that is impressive, you’re just plain crazy.
February 7th, 2011 at 4:23 pm
@ Matt:
http://blogs.forbes.com/beltway/2011/02/06/why-the-tax-cut-reduced-pension-checks-and-why-it-doesnt-matter/
“Many retirees were surprised when their January pension checks were smaller than their December payments. Pension plans had increased withholding for federal income tax, shrinking net benefits.”
February 7th, 2011 at 4:34 pm
@curbyourris
I told you about that up at 11:55am.
February 7th, 2011 at 4:39 pm
I know….just reminding you of what you said.
You STILL have not answered my question.
February 7th, 2011 at 5:01 pm
econimonium already answered your question.
February 7th, 2011 at 5:09 pm
It’s only five data points, but if you don’t think that is impressive, you’re just plain crazy.
Not sure whether that was partly addressed to my comment above, but you didn’t address the question I asked. Is there a lag in rolling out the revised withholding schedule table that employers use to calculate 2011 payroll? I didn’t invent that question; the WSJ did a few months ago.
February 7th, 2011 at 5:13 pm
@Transor Z
I didn’t answer your question because I already addressed it up at the top.
February 7th, 2011 at 5:17 pm
This just in from the Congressional Budget Office’s “Monthly Budget Review”:
“That payroll tax reduction took effect in January of this year, and although employers had until the end of January to adjust tax withholding for their employees, many did so at the beginning of the month.”
So there. The CBO agrees with me.
February 7th, 2011 at 5:27 pm
These boys keeping you on your toes Matt ;-)
February 7th, 2011 at 5:55 pm
Here’s my data:
My Dec 31, 2010 paystub
My Jan 31, 2011 paystub.
Taxable income is unchanged
Medicare and SS deductions are unchanged.
Fed tax withholding is up 6.5%
I work for a large employer (Univ. of Calif.). Clearly, the payroll system doesn’t yet reflect the recent tax legislation.
February 7th, 2011 at 6:26 pm
A question for Matt:
My wife is an independent contractor; she pays (on a quarterly basis) estimated taxes, which include amounts for income taxes, Social Security taxes, and Medicare taxes.
Are such payments by independent contractors reflected in the data you refer to? Or does your data reflect only withholding taxes paid by employers?
Thanks.
February 7th, 2011 at 6:48 pm
@BigD173
I think that they are, but I don’t know for sure. There are two categories on the Daily Treasury Statement: “Withheld Income and Employment Taxes” and “Individual Income Taxes”. But the Treasury Department doesn’t list the components of each category.
February 7th, 2011 at 8:04 pm
Thanks for the reply.
February 7th, 2011 at 8:56 pm
Dunno about this assumption Barry:
“With the substantial Social Security tax-cut in effect for 2011, we should expect withholding-tax collections to decline. However, that has not been the case…The only way this could happen is if there were quite a lot more workers on payrolls than there were last year at this time. ”
It seems to me this metric captures an average, while what you say may be true, it also might be true that remuneration can increase and thus reach the same outcome.
February 7th, 2011 at 9:02 pm
@Matt
So look into your voodoo box and tell us where these jobs actually are.
At
http://globaleconomicanalysis.blogspot.com/2010/12/jobs-forecast-2011-calculated-risk-vs.html
Mish goes back to the Clinton years when 225,000 jobs per month were created and shows how 2011 jobs growth will be about 100,000 to 125,000.
I think he is about right. So where are the jobs Matt?
February 7th, 2011 at 10:59 pm
Franklin411 – good comment.
100 different data points basically support a solid, even strong, recovery. It even seems, again on 100 data points, to be getting stronger.
Been that way since April 2009. If you don’t see that, even with hindsight, please exit the “markets” business. You suck at it.