Visualizing The Last Three Bonus Seasons
While banks would be the last entities to reveal disclosure on bonuses during the current time filled with populist agita and froth (it certainly would "destabilize" the financial system if Joe Sixpack was aware that XYZ's main bond trader made $50 million simply by buying short and lending long), none other than Tim Geithner's treasury department provides a convenient way to track aggregate bonus dissemination data in the form of daily tax withholding data from the Financial Management Service. A historical analysis indicates that December and January are traditionally the high outlier months when it comes to tax withholdings, for the simple reason that these two months is when the majority of bonuses payments are disbursed, and being defined as "supplemental income" and taxed at a flat Federal rate per IRS publication 15, they provide the double whammy of increased income tax withholdings and a higher withholding rate. Zero Hedge has compiled daily data from the past three years' bonus seasons to determine whether there is any secular shift to bonus outlays, not just on Wall Street but Main Street as well (surprisingly for the Obama administration, the bulk of withholdings does not come from Wall Street). Our observations were somewhat unexpected.
To compile the data, we aggregated the daily work day disclosure from http://www.fms.treas.gov/, starting at the nearest work Monday in December (for all but the 2009/2010 bonus season, this was a December day, while the "first" Monday of the 2009/2010 period was on November 30, 2009, which we included for a comparable analysis). Analogously for the tail end, we counted through the "last" Friday of the January bonus season, which in 2007/2008 fell on February 01, 2008, which we also counted for comparable purposes. We then proceeded to calculate the approximately 42 work days in the "bonus periods" of December-January, without adjusting for the Dec. 31/last Friday of any given year. The result is presented on the chart below.
As the chart indicates, the trendlines across all three years do not diverge until the 9th workday in December, at which point incremental "supplemental" payments start hitting paychecks en masse, and thus boosting Treasury withholdings. As highlighted, both 2007 and 2008 demonstrate quite a few "boost" days, which shift the trendline progressively higher. Curiously, for 2009/2010 there have not been many such one-day "boosts" which could be interpreted that there are no days in which banks have made payments yet. As banks tend to clulster check writing on the same day for strategic reasons, just as they notify their employers of what their bonus numbers will be at or around the exact same time in the year, this explains why Wall Street would provide a material "boost" to the average trendline. It is also notable that the 2009/2010 cumulative withholding today is roughly $40 billion below the 2007/2008 and 2008/2009 trendlines. While this could be explained by the lower overall employment, as many have noted, unemployment has hit the lower income classes more selectively than the higher wage earners during this recession. It stands to reason that bank bonus disbursement actions likely account for a substantial portion of this variation.
Yet one curious observation is that while many have noted that bonus pools last year were half what they were in the prior year, the cumulative withholdings for 2007/08 did not differ materially from 2008/09. Assuming a $40 billion decline in overall disbursements, there should have been a much more pronounced impact on the 2008/2009 curve compared to the prior year, yet there was virtually none. Furthermore, if indeed 2009/2010 bank bonuses are supposed to be an all time record, this has yet to be experience by the Treasury in the form of increased withholdings.
A granular analysis of the 9 work weeks in the bonus seasons yields the following chart, which indicates just on which days major bonus outlays may have occurred.
As the chart indicates, there were 5 outlier days in 2007/2008 compared to 3 in 2008/2009 and one in the current period. Yet even that outlier could not counterindicative, as it combines the last Friday of 2009 (New Year's Day) and the first day of 2010, which traditionally have been substantial withholding days (in 2007/2008 these occur in the Mon/Wed sequential outlier duo). Obviously, the 2009/2010 series ends this last Friday as data through the end of January is still forthcoming. If banks truly anticipate making major bonus payments, we expect to see some substantial withholdings jumps in the last two weeks of January 2010.
Yet what is certain is that the average withholding amount over the past three years has declined substantially: from $8,580MM in 2007/2008, to $8,130MM in 2008/2009 and all the way down to $7,294MM in 2009/2010. Even assuming a major bounce in Wall Street bonuses, this likely will be insufficient to stabilize tax benefits for the Treasury.
This analysis ignores February bonus payments: a practice favored by a few banks, and one which we invite our readers to conduct at their leisure. Zero Hedge will repeat this analysis once the month of February is complete in order to evaluate what the full net impact of the last 3 bonus seasons to replenishing America's empty coffers has been.