Those of us, including myself, who thought that the supply-side boom in federal receipts had totally played out, as well as those who are concerned about the condition of the economy, have received a surprising bit of good news this month.
Old Media, which doesn't seem interested in looking for, let alone finding, good news, is not reporting a very interesting development. With two business days remaining in April, Uncle Sam's Daily Treasury Statement shows that federal receipts from income and employment taxes, before refunds, are actually ahead of all of April 2007:
Forecasting a bit to the end of the month, it appears that April withheld income and employment taxes will come in a couple of points higher than last year, and that corporate income taxes will be flat.
But most surprising of all, by the end of April, not-withheld individual income and employment taxes will come in at least 7% higher than April 2007. Receipts in the past few days in this category have continued to pour in at a rate of over $10 billion per day. If that happens, an increase approaching 15% is not out of the question. (What is listed above as "not withheld" also includes a later and relatively small line item in the Daily Treasury Statement called "individual income taxes.")
The unexpected increase in this not-withheld category consists mostly of final payments that accompany individual 1040s for 2007, plus first-quarter 2008 estimated payments. The increase may not only reflect that entrepreneurs and the self-employed had pretty decent years in 2007, but that many of them are thinking, in the face of relentless media harping to the contrary, that 2008 will be at least as profitable. Estimated payments are supposed to be 25% of last year's total tax bill, unless the taxpayer figures that the current year's tax bill will be lower, in which case they can pay in less. I would think that anyone who could defensibly pay in less, would pay in less.
Whether an all-time record for federal receipts goes on the books for April depends a great deal on how quickly the federal government shoots out the stimulus package checks. Monday's refund total contained over $700 million in such payments, which will only accelerate in the coming days, reducing the grand total. That won't change the fact that receipts before considering the stimulus refunds truly rocked, further vindicating the effectiveness of the Bush 2003 marginal-rate and investment-related tax cuts more than six months after most, again including myself, thought they had their last hurrah.
The news from the Treasury also leads to a pretty good question in advance of tomorrow's report on first-quarter 2008 Gross Domestic Product (GDP) growth: If things are so bad, why were April's tax receipts, which include first-quarter 2008 estimated payments, so high? Even if tomorrow morning's advance number comes in barely positive, or even negative, those receipts, plus reports that some of the first quarter's production has gone into inventory growth -- something the GDP reports usually don't pick up until the first or second revision -- would seem to bode well for a number that goes slightly positive, or even more positive, when the May and June revisions come in. (Production that goes into inventory build-ups is considered part of GDP.)
As might be expected, the AP's Martin Crutsinger didn't see it that way on April 14 when he reported on the inventory buildups that occurred in January and February:
Businesses saw inventories rise by a hefty amount for a second straight month, likely reflecting an unwanted buildup in stockpiles that will act as a drag on economic growth in coming months.
The Commerce Department reported Monday that inventories held by businesses on shelves and backlots increased by 0.6 percent in February after an even bigger 0.9 percent gain in January.
Inventories have been running very lean for some time, so it could be that they are building up again to respond to existing or anticipated customer orders. We shall see.
Cross-posted at BizzyBlog.com.