February 2010 Federal Tax Withholdings Plunge To Multiyear Low

Tyler Durden's picture

February was not an auspicious start to Obama's record budget deficit-busting plans. The Daily Treasury Statement for the full month of February was just released, and it disclosed that while corporate tax withholdings, net of refunds, actually climbed marginally to $3.4 billion from $(3.4) billion in February 2009, individual tax withholdings plunged to a multi-year low of $30.7 billion. Combined, the two items also posted a multi low of $34 billion, less than the previous recent low from February 2009 when the first leg of the Greater Depression was allegedly at its zenith (see chart below). We can't wait to hear how the "recession is over" brigade will paint this particular data point.

On a rolling twelve month basis, the government has to plug an LTM hole of about $250 billion in annual tax withholdings. The LTM individual tax withholdings have dropped to an unprecedented low of $1.275 trillion, compared to the $1.43 trillion as of September 2008 when the recession was about to start. If the government is unable to resurrect tax withholdings to historical levels before the interest rate on the $7.9 tillion in marketable debt starts climbing (even as the $7.9 is set to become about $10 trillion in just over a year), call it a ballgame.

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Mr Lennon Hendrix's picture

Greece is over!  Take me out to the ballgame! 

Mr Lennon Hendrix's picture

Also, aussies raise cash rate.  The raising will continue, but way too slowly to catch inflation.  at least some will try to get ahead of the pack.

Mr Lennon Hendrix's picture

What will happen to the back of the pack?  They will have to deal with the wrath of the artists that will assault their being.  goodbye 'merica.  here is one of the greatest MCs to ever grace the mic's view of 'merica.  "Piss on the constitution, and burn the magna carta"

Pharoahe Monch - Book of Judges:

http://www.youtube.com/watch?v=_YGHFJCG9IM&feature=related

glenlloyd's picture

I wonder whether the decline is due to employment issues or whether people have just had enough and have decided that they aren't having anything withheld. I seem to recall some discussion previously about cutting off Uncle Sugar.

Cognitive Dissonance's picture

Why not both? How can anyone continue to believe the Bureau of Making Stuff Up when it comes to unemployment numbers? It's ludicrous to think that things are getting better when most indicators not controlled directly or indirectly by the powers that be are trending back down or never turned up.

Considering inflation is also much higher than stated and raises are a thing of the past, simply because employers can point to inflation and "tough times" as their justification for no raise, people are going to add one of two more dependents on their withholding instructions to give them a little more cash flow. We'll deal with it next year when taxes are filed. 

In fact, many people over withhold anyway because they like those big refund checks, using the government as a non-interest bearing savings account that pays out in Feb or March. Charities are also hurting, describing a situation where people are reducing or eliminating their automatic paycheck deductions for charity to provide even more cash flow. Many of my clients have done all of the above plus lowered or eliminated 401(k) contributions.

 

Assetman's picture

I seldom withhold more than the tax authorities would like... and about 3 weeks ago, I got a nice mailing from the IRS that had payment vouchers for the 2009 AND 2010 tax years.

I think it's funny that (a) I can only roughly estimate what my tax liability in 2009 is going to be; and (b) I have no idea at all what to expect in 2010-- heck I might just be out of a job, if the SHTF.

Yet our wonderful U.S. Government wants me to prepay 14 months in advance.  You can't make this stuff up.

Anonymous's picture

I'm in the same boat. But only for 2010. I don't like the government handouts (to corporations mostly but I don't like welfare either) so why do I want to pay in? I rather make them wait and suffer for their stupidity. And I don't care which party is in power. Two heads of the same beast. To say one is better then the other is like debating how to say tomato. Pointless.

trav7777's picture

CD, use Orwell...it's the "Ministry of Truth."

Anonymous's picture

You don't need no stinking tax payments when you've got your own printing press.

Ain't that right, Bennie?

Instant Karma's picture

Well, the shit is going to hit the fan. Tax revenues plunging. States going bankrupt. The Federal deficit exploding. Two choices: print more money, really fast, or some big states grind to a halt, and interest rates spike on Treasuries and MBS. Oh ya, and tax increases too. I don't see how how the Fed cannot renew being in the mortgage market, and I don't see how the Fed can't be in the Treasury market. And I don't see how the Feds don't bail out the states. It's mo' money all around. Probably need a good crisis to get this second dose of money printing tho. Stocks are in a for a good drubbing along the way.

Mr Lennon Hendrix's picture

All of the above marked.  "print more money, really fast, or some big states grind to a halt, and interest rates spike on Treasuries and MBS. Oh ya, and tax increases too. I don't see how how the Fed cannot renew being in the mortgage market, and I don't see how the Fed can't be in the Treasury market. And I don't see how the Feds don't bail out the states. It's mo' money all around. Probably need a good crisis to get this second dose of money printing though."  Inflation will help stocks look "good".  Numbers can be decieving.

Anonymous's picture

The Fed is going to pump more money into the system, but they aren't going to tell YOU about it. They'll make up some new Treasury Department acronym, staff it with idiots, then run billions more through the new "SMD" program to perpetuate the perception that everything is a.o.k.

Interest rates stay low. equity prices stay high. Sheeple see their 401K's approaching 301K levels, and the current administration gets to keep the majority when November elections roll around.

Then wait for the true looting to begin.

Anonymous's picture

Anonymous, you are right on!

Ned Zeppelin's picture

Why would stocks be hammered? The decision to print is what fuled the market's rise from the March 2009 low.  If anything, the continuation of QE will signal "time to buy risk assets" and the stock market will rise. At least, that is the lesson post-March 2009.

And I would take Ben at his "word," if that means anything. They will stop MBS purchases (accomplished solely by printing more FRNs) and there at least will be a pause in any overt purchases of Treasury debt.  The covert purchases to make sure there are no auction fails (not that I believe at this time such a thing is a threat) and to make sure rates do not go sky-high (definitely a factor) will be there.

Anonymous's picture

Inflation is good for stocks only for a limited time as quantitative easing carries the illusions of more real money moving around. Earnings go up, social mood lifts P/E ratios and stock markets take off ... the disruptions caused by high inflationary environments (exchange rate uncertainty, real growth uncertainty, future tax liabilities, ...) eventually will depress P/E ratios, cause lower consumer spending and, thus, stall earnings growth.

Look at what stocks did in the 1970s during high inflation. Not a pretty picture.

Assetman's picture

That's actually a very good question, Ned.

My only response to that is that continued QE will eventually have an impact on commodity inflation.  Once the sheeple see gasoline hit 5 bucks a gallon on their declining income levels, it may start to hit home that something has gone astray.  Already weak demand will get weaker.  And if wages miraculously increase in line with underlying inflation, the bond vigilantes will be out on the long end of the curve in a very significant way, pushing up yields.

We got a nice window for QE to work on risk assets in 2009 when the world felt like it was coming to an end.  The weird thing is that we are still literally deep in the hole that was created in 2008-- the only difference is that risk assets are almost twice as high. 

As for MBS purchases, perhaps the Fed sees the need to end the purchase program now for primarily the reason you indicate-- with Treasury bond issuance ramping up to fund the growing deficit and roll in maturities-- most of the Fed's efforts will be centered in "providing liquidity" during times when the Treasury auctions are most at risk.

Of course these stick saves by the Fed amount to cheating... but when has that ever stopped Uncle Ben and Turbo Timmy?

A Man without Qualities's picture

They either print more now, to stop yields going up or they print more later to pay the interest on the debt.

I am sure they go for the former option, as it will help to push the markets higher and boost the illusion of wealth, which is all the Fed can really do.

 

trav7777's picture

I agree...this argument revolves around the notion of the deflationists like Douchinger that the governments will implement austerity.

Of course he says we can't "devalue" and everyone is fucked worse because we are the reserve currency.

Yes, there's an inherent contradiction.  We don't HAVE to implement nominal austerity *because* we can print the reserve currency.  Nobody is going to impose austerity on us like with Greece.  The only way that can happen is total FRN collapse with replacement by another reserve or if we have to start sourcing FX'd debt.

You couple that with a totally consequence-free deficit mentality in DC.  They are programmed to spend money they do not have.

I see no possibility for austerity measures here except if our currency is replaced.  Congress will not and cannot implement austerity because Congress is pathologically dysfunctional.  And, what about austerity?  Fuck it!  They held up billions for UE extension and the wars cost what?

Austerity is all about sticking the masses with the bill for the ELITES' running up of the gov'ts' tab with their BRIBED political leaders!  The elites made out like kings during this debt wave...we are the Bamboo Lounge writ large.

The Fed HAS to know by now that credit growth is done and cannot be revived.  There are two courses here, dramatic contraction of gov't at ALL levels, which employs what half the goddamned country, or to start unsterilized injections of cash.

The productive sector is crumbling under the weight of the burdens imposed by the public sector - they're suffocating the life out of it like a Haitian building.

Anonymous's picture

NIce Post.

Anonymous's picture

Mr. Lennon - Inflation ? what world do you live in Sir ? Have you looked at the CPI and wages lately ? Of course interest rates could be determined independent of whether we are deflating or inflating simply because of too much treasury supply !!

colorfulbliss's picture

Mr. Anon - I will tell you what world I live in.

Made a trip to WalMart for necessities....$65.00 for 2 bags of nothing....

But I guess that it's all MY fault because I didn't purchase a 156 inch lcd tv that is officially on the CPI....

But who knows...perhaps with the right seasonings and steak sauce that t.v. might actually taste good.......

perchprism's picture

 

That's right---look at the price of cereal and milk.  They go up while consumer electronics go down.  Meanwhile, we're told the CPI is down so there'll be no COLA for Social Security recipients this year.

SayTabserb's picture

Weimar or Bust.  Yes, $10 trillion at 7% would bring debt service to over 50% of withholding.  Surely that is a Gave Over scenario, one of many routes to Wheelbarrow City. Henry C.K. Liu, among others, has been arguing for years now that only real wealth built on work can get us out of a debt-clogged collapse, but The Bernank & Co. are having none of that.  How many mountains of debt can they balance on the mole hill of tax revenue?

Bear's picture

Not to worry ... they won't be able to sell enough Treasuries after a couple of failed auctions anyway

Assetman's picture

Are you kidding me?  With the Federal Reserve around creating money, there WILL NOT BE A FAILED AUCTION.

The only thing risking a failed auction would be (a) a massive run on dollar devaluation; and/or (b) Ben Bernanke and friends get caught asleep at the wheel.

Neither scenario is likely over the next several months.

We have Europe to partially thank for that.

Anonymous's picture

Very pertinent article. Danke Schoen Herr Durden !!

Anonymous's picture

Bunning is really gunning !!

Anonymous's picture

As to the "recession is over" brigade. Bernanke has already blamed the snow storms.
I'd have fell out of my chair if I could still afford one.

Oracle of Kypseli's picture

That is why Iceland went bankrupt. It was the weather last year. It must have been very cold.

Gordon_Gekko's picture

Looks like we're all set for S&P 5000!

Bear's picture

Dow 36,000 ... you can buy for $0.95 on Amazon ... thanks for the tip

Harbourcity's picture

Apparently there's a "collectible" one for $5... it includes the author's tears.

Bear's picture

Money Laundering 101 ...

Step 1 - Print money ...

Step 2 - Buy Securities ...

Step 3 - Leverage Securities ...

Step 4 - Borrow more money with Leveraged Securities as collateral ...

Step 5 - Default ...

Step 6 - Start Over 

Anonymouse's picture

You forgot Step 4.5 - Pay yourself dividend with proceeds of borrowing

Eally Ucked's picture

For something it's called S&P 500, don't you think?

Fish Gone Bad's picture

What you learned in history about a depression "just happened" is incredibly untrue.  Things grew worse and worse, in spite of the government denying it.  Eventually people realized that they were in a shit storm, and had always been a shit storm.

So what to do?  Get out of debt.  Stock up on things you might need in a disaster.  If there is a bank holiday, you still have to eat.

Anonymous's picture

Get out of debt?!? You MUST BE Joking!

MAX EVERYTHING to the HILT, then default, just like our government is doing.

He who plays by the traditional rules, while everyone else is breaking them, ends up WORST OFF.

Don't be a fool.

trav7777's picture

I gotta agree with this.  Max it out and walk.

Buy gold with it and then you can give it to a banker to give you a credit card with a whopping 75% of the value of the gold as a credit line!!!!!!!!!

Anonymous's picture

Bunning is short big time and probably very upset it wont go down.

carbonmutant's picture

 We should be getting a teleprompter recording from our community organizer about how its our patriotic duty to pay our taxes any day now... or Benny's gonna take away the cookie jar and there'll be no QE2 for you.

Handle with care's picture

This doesn't mesh with the report a few days ago showing incomes rising slightly.

 

One of them has to be wrong and I'm guessing its not this one

chunkylover42's picture

incomes rise slightly while there are far fewer people working.  no inconsistency.

Anonymous's picture

The federal tax withheld from paychecks is even worse than the numbers reveal. For 2010, the feds have raised witholdings from paychecks, even though taxes have not gone up. The effect is to give the feds an interest free loan. The feds will pay the money back you file your tax return in 2011.

So, even though the feds are witholding more than ever from paychecks, the amount of tax withheld is still going down.

Exit question: How did consumer spending go up in February while tax witholdings went down? The drop in tax witholdings indicates that consumers had less income, yet their spending increased. Did consumers really spend more, or is the spending data wrong?

Harbourcity's picture

The federal tax withheld from paychecks is even worse than the numbers reveal. For 2010, the feds have raised witholdings from paychecks, even though taxes have not gone up. The effect is to give the feds an interest free loan. The feds will pay the money back you file your tax return in 2011.

To even make it more ingenious, they either:

1) pay your 2011 refunds with IOU's or vouchers, or

2) they're planning for a future tax hike - harder to notice when you're already paying it.

 

 

AR15AU's picture

1) pay your 2011 refunds with IOU's or vouchers, or

 

1040 A 2011

[ ] Check this box to have your refund deposited with TreasuryDirect

[ ] Check this box to have your refund pay down your mortgage

[ ] Check this box to apply your refund towards a new GM vehicle (free car wax kit included while supplies last)

 

 

Anonymous's picture

[] Check this box to have your refund pay down you neighbor's mortgage

Ghettomedic's picture

The drop in witholdings doesn't mean anything more than that -- a drop in witholdings. Perhaps it was due to less income. Perhaps it was due to less witholdings. Perhaps everyone works cash only jobs as prostitutes or meth dealers in a black market economy. Whatever the reason, to say it is A or B is not accurate. Consumer spend went up maybe because consumers paid less in taxes. Maybe not. Maybe they're not related. There is no meaning in the soup. Just data.