Global| Nov 16 2020Something Missing: Federal Income Taxes Are Missing the Rebound in Jobs & Income
|in:Viewpoints
Summary
Something missing. Federal withheld gross income tax receipts continue to post large declines, missing the rebound in employment and wage and salary income. One wonders if the weakness in gross federal income tax receipts is related [...]
Something missing. Federal withheld gross income tax receipts continue to post large declines, missing the rebound in employment and wage and salary income. One wonders if the weakness in gross federal income tax receipts is related to confusion over the Paycheck Protection Program (PPP) as the plan to allows companies to defer certain taxes.
What's Missing?
In October, federal gross withheld income tax receipts totaled $87.7 billion, off 19.2% from year-ago levels. The year-on-year decline last month was slightly larger than the 19.1% reported for September. Both months showed declines that were considerably larger than the 15% declines reported for July and August.
Also, October and September declines in tax receipts were not far behind the 24% decline reported for Q2. That makes no sense. Month on month relatively large job gains since the end of Q2 should result in more federal income tax payments and smaller year on year declines.
In October alone, the Bureau of Labor Statistics reported 2.24 million people found employment, and yet tax receipts showed a year on year decline that matched September, and far larger than what occurred in the summer months.
It is unclear why people are not paying federal income taxes that are in line with job and income gains. One of the possible answers could be the confusion and problems associated with PPP.
According to the Small Business Administration, 5.2 million companies participated in the program, with gross loans totaling $525 billion. Although there are reports of widespread fraud that alone is unlikely to explain fully the weakness in tax receipts.
The bigger issue may be the deferral of taxes. According to the guidelines of PPP, companies are allowed to defer their share of payroll taxes until December 31. But firms participating in PPP are not allowed to defer the employee share or employee income tax payments. Is it possible that small firms are deferring employee taxes as well?
The reason this could be important is that people are liable for their tax payments. If people are not properly paying federal income tax payments in 2020 then many will face a huge tax bill when they file their tax returns prior to April 15, 2021.
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.