January Tax Withholdings Indicate That The Treasury Is Unjustifiably Optimistic In Its Reduced Funding Need Projections

One of the more notable announcements coming out of the Treasury yesterday was that the Tim Geithner-led institution now expects an $86 billion lower funding need in the Fiscal Q2 quarter (January-March 2010), compared to the prior estimate from November 2009. From the press release:

Washington, D.C. -- The U.S.
Department of the Treasury today announced its current estimates of net
marketable borrowing for the January – March 2010 and the April – June
2010 quarters:

• During the January – March 2010 quarter, Treasury expects to issue
  $392 billion in net marketable debt, assuming an end-of-March cash
  balance of $95 billion, which includes $5 billion for the Supplementary
  Financing Program (SFP).  The borrowing estimate is $86 billion lower than announced in November 2009.  The
  decrease in borrowing is primarily related to cash balance adjustments
  and lower outlays offset partially by lower receipts. 
• During the April – June 2010 quarter, Treasury expects to issue
  $268 billion in net marketable debt, assuming an end-of-June cash
  balance of $85 billion, which includes $5 billion for the SFP.
• These estimates do not include any incremental borrowing needs that
  would result from a potential increase in issuance under the SFP.

During the October – December 2009 quarter, Treasury issued $260
billion in net marketable debt, finishing the quarter with a cash
balance of $194 billion, of which $5 billion was attributable to the
SFP.  In November, Treasury had estimated $276 billion in
marketable borrowing for the quarter, assuming an end-of-December cash
balance of $85 billion, which included an SFP balance of $15 billion.  The decrease in borrowing was primarily related to a lower SFP balance.  The
higher end-of-quarter cash balance was primarily related to
greater-than-expected Troubled Asset Relief Program repayments in
December.

Digging through the data (click on the vists link) provides a glimpse into the quarterly cash receipt and cash outlay assumptions that are expected to "validate" this rosy picture. To wit: in fiscal Q2 (Jan-Mar) the Treasury is expected to collect $472 billion on outlays of $812 billion. In Q2 2009, receipts were $374 billion while outlays were $939 billion, for a $565 billion financing need. Fine: maybe there is improvement in the economy. So let's compare actual Q1 F2010 with Q1 F2009: receipts for the Sept-Dec quarter were $493 billion on outlays of $908 billion, a $415 billion funding shortfall. A year ago, receipts were $531 billion on outlays of $1.1 trillion, needed $556 billion in debt financing. And the decline between Q1 and Q2 receipts was a whopping 30%, while cash outlays declined by just 14%. Is it reasonable to expect that receipts will increase this quarter relative to Q2 of last year, and that outlays will be materially lower (the projection estimates a decline from $939 billion to $812 billion)? This data is summarized graphically below:

One can see the dramatic YoY increase in Q2 in the cash receipts side of the Treasury projections.

On the outlays side, we leave it up to our readers to decide if spending will in fact be cut: if one believes that Obama can indeed cut the pork, more power to them. However when it comes to receipts, the main component is tax withholdings, and as January just ended, we are happy to demonstrate just how chimeric any assumption that Q2 of 2010 will be better than Q2 of 2009. As noted above, the Treasury expects a 26% rise in YoY receipts.

We present monthly net Tax Withholdings as reported by the FMS, since August 2008. January individual tax withheld by the Treasury dropped

It doesn't take much to see that any expectations for not only flat, but rebounding Q2 revenues are groundless. Already in the main revenue month of Q2, January, we have seen a 12.4% decline in Individual Tax Withholdings, net of refunds. Corporate tax receipts in January were negligible.

So on one hand the Treasury is expecting a revenue increase of $100 billion in Fiscal Q2 2010 over 2009; on the other hand we know that with one month already done, there is a $10 billion deficit compared to the prior year period. This means that in February and March, traditionally weak receipt months, the Treasury is supposed to collect more than $110 billion compared to last year. This is simply ludicrous. Couple this with the current unemployment rate which for all intents and purposes is the U-6 of mid 17%, which is almost 30% higher than the 13.5% in December of 2008. To assume that all those newly marginal unemployed will have incremental withheld taxes is ludicrous, just as the most recent January data demonstrates.

We are confident that the Treasury will be forced to aggressively revise its funding expectations upward for not only the current quarter but for the April-June period as well. Furthermore, after yesterday's very optimistic projection for funding needs, bond investors likely anticipate that the Treasury supply onslaught will moderate. As the next few months demonstrate, nothing will be farther from the truth.

Comments

[jc125d]

Wow! Wouldn't it be sweet to spend twice what we make! Makes me want to cheat on my taxes. Would that qualify me for a political appointment?

[Ripped Chunk]

Theoretically yes, however you have to have it pointed out to you then lie about it.  Then you are a shoo in!

[Anonymous]

And if you're going to forget those taxes be sure to forget for over five years worth of registered letters and let the Statute of Limitations help you out as it did Turbo Timmy

[luster]

The "Digging through the data" link is broken.

[Yophat]

Somebody believes in a pot of gold....

One might conjecture from this enormous number of 13G filings noted below that Blackrock has taken what appears to be new 5+% stakes in over 1,800 US equities.

"We counted over 1,800 13Gs that Blackrock dumped on Friday...For those less familiar with the 13G...it’s a requirement when ownership exceeds 5% of the outstanding shares...these filings represented new positions for Blackrock since we only counted 11 amended 13Gs, which in itself seems very surprising, given the long list of stocks."

Holy guacamole!

http://jessescrossroadscafe.blogspot.com/2010/02/why-is-blackrock-broadl...

[MyKillK]

That is astonishing. They have a greater than 5% stake in almost every listed company on the market? Totally insane.

Looks like JPMorgan has some competition to be the biggest player on the PPT.

[IBelieveInMagic]

Appears to be tied to their acquisition of Barclays Global Investors?

[Jim in MN]

Tyler, this may be worth commenting on...from Bloomberg News:

"Treasury Dealers Say Direct Bids Risk Upending Auction Process"

http://www.bloomberg.com/apps/news?pid=20602007&sid=aKd7chP015gc

[jkruffin]

definitely time to audit the FED to see exactly what it is they are, and have been doing behind closed doors.  No doubt they have been directly manipulating both treasury and equity markets.

[Anonymous]

You know, as the yawning abyss between reality and government spin widens beyond levels anyone can accept, when it becomes absolutely apparent to absolutely everyone that sh*t is really really f*ck*d up and nothing good is coming down the pike, as this wave of awareness propagates across the populace , the timing of it is what bothers me.
I know our government, and I know that they don't fail to take advantage of every crisis. In fact, our government is now the school of crisis management government, not some peace time continuity of social stability apparatus like the Queen of Hawaii was in her time.

So we know they already have this under control. All the mechanisms for dealing with a complete and total social economic collapse are in place. They put them in place before they even THOUGHT about dropping the central interest rate to 1%.

Like the woman that is being lied to by her cheating playboy boyfriend, Americans continue to TRY to believe in an act of cognitive dissonance the lies we are told yet there it is, the grandly magnificent elephant of shining golden truth in the living room.

I'm saying that the only time you'd so boldly lie to someone is when you're planning to kill them when they realize you are lying. It's a great way to get rid
of all those baby boomers social security liability.

-MobBarley

[Yophat]

Dang skippy!  Latest iteration of plans here -  http://yophat.blogspot.com/2010/01/executive-order-fema-governors.html

[jkruffin]

Maybe they counted the 90 billion in taxes they plan to slap big bankers with?

[Cognitive Dissonance]

Pay no attention to the man behind the curtain. The great and powerful Wizard of Oz has spoken.

http://www.youtube.com/watch?v=YWyCCJ6B2WE

[Anonymous]

I think the most ludicrous statement in the article is:
"Corporate tax receipts in January were negligible.".

Maybe that's the problem. Just sayin', and I don't expect ZH readers to share that thought. Maybe they know, and TimTurbo is looking to corporate america, after all sounds like the Supremes gave them personhood, to withhold tax from them like they do us people? Either that, or he's going for an itax on all the ipads. Either way, I'm all for taxing corporate america, they should pay it proudly as a small cost of doing business in this great county they love so much. Just a way of implementing a consumption tax, but at least I would have the choice of not paying tax by not buying their product.

[Anonymous]

Corporate tax rate in the US is almost 40%, the second highest in the world.

The reason corporate tax receipts were low in January is because it's an off-month in terms of corporate tax collections. As well, profits are still hurting. No profits means no tax income for the government.

Raising corporate taxes at this point would destroy what was left of the market and the real economy.

[Anonymous]

Corporate tax rate in the US is almost 40%, the second highest in the world.

The reason corporate tax receipts were low in January is because it's an off-month in terms of corporate tax collections. As well, profits are still hurting. No profits means no tax income for the government.

Raising corporate taxes at this point would destroy what was left of the market and the real economy.

[Anonymous]

All right... all right... but apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order... what have the Romans^v^v^v^v^v^v^v government done for us?

[bugs_]

"Even those who arrange and design shrubberies are
under considerable economic stress in this period
in history." 

[Orly]

Sir,

Did you say shrubbery?

[Cognitive Dissonance]

"Even those who arrange and design shrubberies are under considerable economic stress in this period in history." 

Nope, he's got it right. "Shrub berries" are a wonderfully powerful hallucinogenic along the lines of magic mushrooms, only much better. Clearly the powers that be at the Treasury have found my stash and are partaking of their new found mother lode as I write.

All I can say is that if I'm going to swallow this Treasury bullshit I want my "Shrub berries" back.

http://en.wikipedia.org/wiki/Psilocybin_mushrooms

[Miles Kendig]

And out of the darkness, the Zombie did call
True pain and suffering he brought to them all
Away ran the children to hide in their beds,
for fear that the devil would chop off their heads - Rob Zombie

http://www.google.com/url?q=http://popup.lala.com/popup/4326270435627365...

[Mad Max]

Ni!

Ni!

[Miles Kendig]

Come back here and fight like a man!...  heh

[Joe Sixpack]

Blue. No yello....

[Miles Kendig]

Purple pills and hills assist with misreading Ni! for Nil...

[Anonymous]

Some call me ... Geithner.

[economessed]

Insert Leona Helmsley philosophy on taxation here --->

[docj]

Isn't this all the rather predictable by-product of putting a tax-cheat in charge of the Treasury Department?

[Anonymous]

THIS IS A MATTER OF WILL, NOT ABILITY.

-Tim Geithner

[markytom]

THIS IS A MATTER OF WILL, NOT ABILITY.

-Tim Geithner

[unemployed]

 The Treasury found 21.8 Billion in the withholding deposit boxes on Monday Feb 2,  compared to 143 Billion for all of January. Mondays must be a good day for the Treasury.  

http://fms.treas.gov/dts/index.html

[Anonymous]

http://globaleconomicanalysis.blogspot.com/2010/02/enemey-is-at-home.html

[Anonymous]

11-09-09 ESTIMATE October – December quarter, Treasury expects...an end-of-December cash balance of $85 billion source (http://www.treas.gov/press/releases/tg341.htm)

2-1-10 ACTUAL October – December 2009 quarter, Treasury...finishing the quarter with a cash balance of $194 billion,  The higher end-of-quarter cash balance was primarily related to greater-than-expected Troubled Asset Relief Program repayments in December.
source(http://www.ustreas.gov/press/releases/tg524.htm
)

Again ENDING CASH in December 2009 was 194-85 = 109 BILLION over the November estimate due to "greater-than-expected Troubled Asset Relief Program repayments in December"

"This means that in February and March, traditionally weak receipt months, the Treasury is supposed to collect more than $110 billion compared to last year."

NO - It does NOT!

The 110 Billion will come out of December's ending cash. In November Treasury was EXPECTING to end December with only 85 Billion in cash after burning through 466Billion from October-December. This equates to 5 billion dollar a day coke habit. Ending cash with 85billion in December equates to only 17days of cash on hand. That was the PLAN, the INTENT of the Treasury in early November.

Instead bankers want to keep their bonuses so they unexpectedly pay back TARP early and Treasury ends December with a nearly 52 days worth of cash on hand. That just won't do.. The Feb 1 estimate brings ending cash in March back down to 17 days. Hand to mouth just the way we like it.

What IS new and exciting (read:suspicious) is the "To view the Sources and Uses Table, visit link." included with this February 1, 2010 TG-524 press release. THAT is highly unusual, as evident by: http://www.treas.gov/press/releases/tg341.htm
http://www.treas.gov/press/releases/tg250.htm
http://www.treas.gov/press/releases/tg106.htm
http://www.treas.gov/press/releases/hp1104.htm
http://www.treas.gov/press/releases/hp943.htm
http://www.treas.gov/press/releases/hp775.htm
http://www.treas.gov/press/releases/hp651.htm
http://www.treas.gov/press/releases/hp513.htm