Global| Jul 10 2020Q2 Federal Withheld Income Tax Receipts Plunge A Record 25% From Year Ago Levels
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Summary
In Q2, federal withheld income tax receipts declined a record 25% from the same period one year ago. That's twice the reported decline in Q2 household and payroll employment. The sharper plunge in tax receipts is puzzling because the [...]
In Q2, federal withheld income tax receipts declined a record 25% from the same period one year ago. That's twice the reported decline in Q2 household and payroll employment.
The sharper plunge in tax receipts is puzzling because the majority of reported job losses, according to the Bureau of Labor Statistics (BLS), are centered in lower-wage industries, such as recreation, leisure, and retail trade.
If job loss were heavily concentrated in the lower-wage industries, tax receipts should be off much less than twice the reported declines in household and payroll employment.
The estimated record drop in federal withheld income tax receipts are based on actual data for April and May and an estimate for June from the Congressional Budget Office (CBO). The actual June tax data will be released in a week or so.
CBO estimates that in June gross withheld income taxes fell only 1% from year-ago levels. But CBO correctly points out that June 2020 had two fewer workdays compared to June 2019. Adjusted for the number of workdays June tax receipts were off double-digits, but still much less than the declines recorded in April and May.
The record collapse in federal tax receipts raises questions over the accuracy of the household and payroll employment data. BLS has noted that the responses for the household survey and the collection rates for the payroll or establishment survey in Q2 were well below the averages of the past year. Potential errors could exist not only in the number of people working, but hours worked, and wages.
Congress will soon be debating whether it should provide a second round of stimulus checks while also extending additional unemployment compensation. The record drop in tax receipts indicates both measures are needed.
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
Joseph G. Carson
AuthorMore in Author Profile »Joseph G. Carson, Former Director of Global Economic Research, Alliance Bernstein. Joseph G. Carson joined Alliance Bernstein in 2001. He oversaw the Economic Analysis team for Alliance Bernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income and ranked as one of Best Analysts and Economists by The Global Investor Fixed Income Survey. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Honorary Doctorate Degree, Business Administration Youngstown State University 2016. Location: New York.