As Individual Witholding Taxes Roll Over, It Is Time To Ask Where The Corporate Taxes Are

Two days ago, the US Treasury announced that for the Q2 fiscal quarter (January - March), the net borrowing need of the US would be $97 billion lower than its previous estimate, coming in at $444 billion for the three months (still a $115 billion monthly run rate, not nearly enough to last until the end of the year with the current debt ceiling capacity, and likely not even through the election). What the Treasury did not specify is where this incremental cash would come from, merely noting that the higher cash balance which it ended December 2011 with compared to estimates "was driven primarily by higher-than-projected receipts and lower outlays" implying that the Treasury was confident higher than expected tax receipts would continue.

There is however one problem with this: as the attached chart from the just released Q1 fiscal report from the Office of Debt Management shows, withheld taxes, the primary source of US government revenues, has just rolled over and is now posting negative Year over Year numbers (chart 1). Which is bad news for Tim Geithner if he hopes that the spike in tax receipts will continue, and for the TBAC which projects a lower than expected funding needs: in fact we are confident that the net issuance in Q2 will be substantially greater than the net forecast, and will likely be funded with short-term Bills, either ad hoc, or in the form of increased program Cash Management Bills issuance. Yet the fact that America can not live within its means is not news. What however, needs addressing is why, as Chart 2 shows, have US corporate taxes never regained their historical levels from 2007, when as is well-known, corporate profits have never been higher (if now rolling over finally), and corporate cash, especially that held off shore, at record levels? Because as the green line shows, the 12 month moving average of corporate income taxes, has barely budged from the recession lows. We wonder why nobody has asked the question: why is this the case and why have neither politicians nor individual taxpayers made an issue out of this yet?

Chart 1 - quarterly tax receipts: Withheld taxes has rolled over for the first time since the recession ended, at least officially.

Chart 2 - comparison of individual income taxes and corporate incomes taxes. Notice the divergence? As for Social Insurance Taxes, forgettaboutit.

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