> The surplus last month was the first since the $83 billion reported in September 2019 and the largest since the $160 billion in April 2019. April and September are traditionally months with high tax collections....
> The surplus for the month also was helped by the recognition of $70 billion in proceeds from a wireless spectrum auction, a U.S. Treasury official said.
It seems like this is a month to month number that fluctuates widely based on one-off events and things like when people typically pay their taxes.
> It seems like this is a month to month number that fluctuates widely based on one-off events and things like when people typically pay their taxes.
Even if it varies a lot over the short-term, reaching positive numbers after a long period in the negatives would suggest an upward trend that isn't just noise.
You can measure a long term trend, even if it's overwhelmed in the short term by much larger changes, by tracking local maxima/minima. Suppose that a circuit's voltage is either increasing or decreasing by 1V per hour, and your measurements ranging from 90V-110V. To determine the trend, you ignore the increase/decrease from one measurement to the next, and wait for it to hit 111 or 89.
imagine if the number were -X billion. As I increase X, your estimate should respond. Surely there is an X such that you would notice, even though it is admitted the number varies, right? i.e. even a one-time -100000 billion month would be noticeable in your framework?
From there we show that -100 is not quite as bad, and +100 is better.
If a new employee is an hour late the first day on the job, it doesn't prove they're not committed but it sure points that way. Every observation is evidence, raising or lowering your estimates of reality behind the observations.
Interesting thing about the Trump tax cuts was that government tax revenue never declined. The year after they went into effect, Federal tax revenues were higher.
Was pretty shocked when I saw this because the corporate rate cut was huge. Perhaps offset by SALT changes
This is a very important place where cash accounting and accrual accounting differ, and a lesson in why it matters. Tax receipts went up because people paid up deferred tax liabilities - they took advantage of lower rates to pay taxes now rather than at a presumably higher rate in the future.
If you get paid $300 today to settle a $600 debt due next year, you haven't made yourself richer. You've essentially sold an asset at a discount.
Surely some portion of that behavior played into the numbers, but tax receipts basically just stalled for one year, and then continued on their normal growth trajectory.
If the effect were large, you would expect a decline in revenues in subsequent years.
Or a decrease in the previous years. With how predictable US politics is, I would expect accountants to suggest holding these things until a Republican government, which will be no more than 8 years away. But looking back or forward there’s also the other effects of government on their income to confound spotting it.
Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too
>> Interesting thing about the Trump tax cuts was that government tax revenue never declined. The year after they went into effect, Federal tax revenues were higher.
> Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too
I doubt that was what was going on there. IIRC, the "Laffer Curve" is some neat BS that's mainly useful to sell tax cuts, but all those tax cuts never resulted in the greater revenue the curve predicted.
Maybe there's some truth to the curve when effective tax rates are 90%, but that's not the world we live in.
For sure, I'm familiar with the concept, but wouldn't expect that effect alone to close the gap. But maybe companies actually chose to realize more gains once the rate was lowered.
Need to find a good post hoc analysis of how revenue ended up higher.
Also weird side note, Arthur Laffer is in his 80s but sounds/looks in his 60s in his interviews. Kind of amazing!
That likely explains part of it, but if you look at total revenues per year looks like it basically just subtracted one year of annual growth from trend.
If it was primarily due to one time realizations, you would expect a spurt shortly afterwards, followed by decline.
> I’m surprised at how much this got downvoted. The laffer curve is pretty intuitive. I’m not sure why there is all the hate
"Intuitive" does not necessarily imply "true." Some of the most pernicious false ideas are ones that have an intuitive appeal (especially in an oversimple example scenario).
The Laffer curve likely falls into something like that category. If it has any truth to it, it's in conditions that don't actually exist (like an effective 90% tax rate).
There is nothing false about the laffer curve. What is contentious is what the optimal rate is. There is no evidence that I’m aware of that says the optimal is 1% or 99%.
The Laffer Curve was a made up justification for a policy (tax cuts for wealthy people and corporations) a GOP administration wanted to implement as a favor to their political patrons. Laffer came up with it on the spot and sketched it on a napkin.
It (and “supply-side economics” in general) is not a serious economic theory.
The Laffer Curve is pretty obviously trivially a real thing, the contentious part is the parameters defining the curves and/or points in multidimensional tax policy space where the Laffer Curve hits a maximum of tax collection and where variation leads to decreases (or no change if there is a ridge maximum and the change exactly follows it.)
Well, also the usual one-dimensional presentation of the tax-policy space that goes with the curve, but that's not so much contentious as obviously wrong.
The people who think it is important tend to have a religious faith that the status quo is in a space where decrease of taxes in any aspect of tax policy moves is back toward the maximum, which, even if you accept the existence of the Laffer Curve, is a claim which needs a lot of justification which is never offered.
I find it important because the impact is pretty obvious to me. Though if I was radically anti-capitalist I might agree with you. The optimal rate could be as low as 1% or as high as 99% for all we know. I’m inclined to believe it’s much lower though because of the incentive it would provide to entry level small business owners and entrepreneurs that are even marginally familiar with how accounting works.
The "Laffer Curve" has been widely discredited by economists across the political spectrum.
Tax revenues in the year after the the Trump tax cuts (the Tax Cuts and Jobs Act) did indeed rise (FY2018). That being said, much of that was attributable to economic growth and inflation. The real question is what would revenue have been had the TCJA not been passed? It's obviously impossible to answer a counterfactual, but the Congressional Budget Office's predictions for 2018 taxes - made before the tax cuts were passed - were $276bn higher than actual receipts. These predictions ended up being pretty close to accurate for types of taxes that weren't affected by the TCJA, so it's a good ballpark.
I agree that revenues almost certainly would have been higher without the cuts, but still pretty amazing that it seemed to only pull one year of growth from trend.
To be honest, I would have expected a much bigger decline
I understand where you're coming from, but $276bn is a pretty substantial amount of money though! I think it's also worth noting that this outcome (revenue would increase due to expected economic growth, but would end up lower than in the no-tax-cuts scenario) was correctly predicted by most of the organizations that studied the impact of the legislation.
This seems like a volatile number - from the article
>The January receipts grew by 21% to $465 billion, boosted by a 21% jump in individual withheld income and payroll taxes that reflected higher employment and earnings due to the economic recovery.
>January outlays fell 37% to $346 billion, partly as they did not include $142 billion in individual stimulus payments sent in January 2021.
>The surplus for the month also was helped by the recognition of $70 billion in proceeds from a wireless spectrum auction, a U.S. Treasury official said.
The trend-line is promising, I'd be curious if inflation is moving income into more taxable sources (at least on paper).
Government revenue and outlays vary significantly throughout a fiscal year.
For example, the US government is currently operating under a continuing resolution since October 1, 2021. A continuing resolution is a legally binding act that freezes budgets to the levels of the previous fiscal year.
If an appropriations bill is adopted in the next few weeks, government departments will start acting on their budget authorities set forth in the already passed Authorization Acts. The Defense Department is poised to spend $60 billion more in FY22 than in FY21. Expect the temporary budget surplus to decrease when (if?) an appropriations bill is passed.
If an appropriations bill is not passed, Congress could pass another CR for the rest of the fiscal year. If neither a budget nor a CR is passed, a government shutdown happens. It doesn't happen often, but it happens more often than it should, which is never.
The federal budget process of the United States is unnecessarily complicated. Congress basically has to pass the budget twice: first in an authorization bill, and second in an appropriations bill. An authorization bill is an act laying out the various spending authorities of the government for the fiscal year. But it doesn't grant the government the right to withdraw funds from the Treasury Department. An appropriations bill is that. Authorization acts are like your parents giving you a list of products they want you to purchase at the grocery store. An appropriations bill is the actual money to buy the products with.
The Fed creates money out of thin air. Still, it does not mean the bonds bought by the Fed are foregone. The US Treasury still has to pay all the interest and principal on them.
For a while now, the Treasury has been borrowing to pay the interest it owes, and everyone knows that we don't actually pay down the federal debt, we just roll it over into new debt.
> If you think Fed is creating money out of thin air, it's too far from reality and too politically coloured for me to convince you otherwise.
The Fed is creating money out of thin air (well, strictly speaking, it's managing, through target interest rates and other levers, the ability of member banks and other actors to do so, but that's the same thing, ultimately.)
That is the objective reality. And it's just conventional understanding of monetary policy, not MMT or End the Fed. (MMT points out the further fact that the Congress, by net taxing/spending decisions, also creates money out of thin air, or destroys it, and furthermore that that and it's money supply effects, not the mythical constraints of fiscal balance which are entirely applying concepts that only make sense in terms of a commodity currency whose underlying commodity supply is not ultimately controlled by the government at issue to a fiat currency to which they do not apply—which, really, is all basically conventional economics, but also conventionally ignored in a policy evaluation context because conventional economists don't like the policy conclusions it leads to; End the Fed I won't touch, because I’ve yet to see a clear, coherent, consistent argument in it beyond “Fed bad”.)
What? This isn't MMT or conspiracy. Where do you think the Fed gets its money when it grows its balance sheet by $4 trillion in two years? I'm honestly curious, where do you think that money comes from?
So when you go to the bank and borrow money with either your personal credit or with your house as collateral, is the bank creating money "out of thin air"?
They take money from depositors to originate the loan. But I'm not talking about the money multiplier effect of fractional reserve banking. I'm talking about when the US Treasury needs to quickly sell several trillion dollars worth of bonds to fund things like stimulus checks, covid tests, etc..., and the Fed buys most of it (in order to keep interest rates from skyrocketing) they are doing so by creating new money. The fed doesn't have $4 trillion in cash deposits to loan out to the treasury, especially while they are cutting reserve requirements.
They do not take that money from someone else. They do not sell a product to get revenue. They mark up the accounts at the Fed and spend trillions of dollars that didn't previously exist on government bonds. The Treasury takes that money and spends it on govt programs.
Again, where do you think the Fed gets new cash to buy bonds with?
Inflation is currently much higher than treasury bond rates and they are selling fine. Your claim is obviously false. Inflation was 7% the stated goal inflation rate is 2%. The 5 year t bill is 1.7%.
5 year CPI breakevens are still 2.8%. So the market is still pricing bonds expecting inflation to cool. If inflation persists at 5%+, then bond yields will almost certainly rise.
US Bonds are considered basically the safest investment in the world, so in a condition where they lose you money, they are still better than either not investing (losing even more to inflation) or risking on something with higher returns.
That's only true if you're comparing holding a bond until expiry vs holding cash for the same time.
Assume I have a 10y bond. I can buy it today for 2%. Or, I can sit in cash.
Next month the yield goes up to 3%. I buy it then with my cash. I made more money by holding cash rather than the bond.
Cashflowing assets are only a good inflation hedge after they've been valued using an appropriate discount rate for that inflation.
Both equities and bonds are not valued appropriately for the level of inflation we have, because market participants still believe in transitory. But that belief is being shaken. Personally, I would hold cash over bonds or equity right now.
some institutions need to hold the safest investment, since they might have sudden need to use it as cash - places like insurance companies, or companies that are holding on to liabilities that have a future date, but need to have assets today on hand (for paying in the future date).
You cannot hold equities, or bonds which could lose value for such purposes.
You may be mistaking short term and long term trends here.
Whats remaining to be seen is how long this glut of inflationary pressures continues. At some point, it's much like a bubble - it is inevitable that things cannot continue that way forever.
That's what the Fed buying $120B a month in Treasuries is for. You don't really think people accept negative 5% real yields on their investments?
From the article:
> For the first four months of the 2022 fiscal year that started Oct. 1, the Treasury reported a deficit of $259 billion, a 65% decline from the year-earlier deficit of $736 billion.
At $120B a month basically the entire deficit is being printed away.
The treasury continues to pay coupon payments to the Fed.
Though you're right that Fed is partially monetizing deficit spending, that money gets reabsorbed over time through coupon payments.
However, Fed typically will repurchase to keep balance sheet stable. Hopefully they actually do QT like they're saying to start reducing the balance sheet
Interestingly, we had the Big Short on TV yesterday, and there is a section of the plot where the subprime mortgage defaults were shooting up, but the subprime mortgage bonds prices themselves were also going up.
I dont agree with that and here's why: Whenever taxation > spending (ignore once off liquidation of assets), the government actively destroys private sector savings (dont take my word for it, go ahead and map the transactions on the balance sheets of the pvt sector, central bank and the treasury, and you'll see the transaction reduces pvt sector assets). What you're saying is rather than risk inflation eroding the value of those assets, lets just destroy them outright. The counter-argument could be that private sector would issue more loans on aggregate (create money) if inflation were lower but that borders on tea-leafy speculation
When the annualized rate of inflation is at 7.5% and growing, the Treasury Department should probably come up with a new term for whatever that $119B is. Call it anything but a "surplus."
Here's what ZERO of the doomer-preppers (including smart analysts and economists) don't get about inflation.
When a US citizen earns an EXTRA dollar, they pay MARGINAL Tax on it (not average tax, but MARGINAL).
The left (or right) of the GDP equation is literally income. So a 7% inflation means, US treasury gets MARGINAL tax revenue on the 7% income, which mathematically means that Tax Revenue increase has a higher-multiplier effect. (A 1% inflation may result in 3% more tax revenue)
So, all these scaremongering of US having to pay extra interest is actually false. Treasury will make far more Tax Revenue than the rate Federal Reserve can raise rates, which means they can easily absorb high rates.
All in all, Fed is still better of erring on the inflation side than crashing the economy.
Inflation eats away 7% of most people's income. A Recession will eat 100% of many people's income.
Note: This Tax collection phenomenon is completely different from inflation favoring debtors, which is also another advantage for USG.
> The surplus for the month also was helped by the recognition of $70 billion in proceeds from a wireless spectrum auction, a U.S. Treasury official said.
It seems like this is a month to month number that fluctuates widely based on one-off events and things like when people typically pay their taxes.