According to Trim Tabs, income-tax withholdings in the past four weeks are down 6.1% from a year ago; in the last two weeks, they're down an even bigger 8.1% from last year. That marks a sharp deterioration from May, when income-tax withholdings were off "only" 4.8% from a year ago.
You hear a lot of talk about "green shoots". I think "drought", "root fungus", and "blight" a hit closer to reality. There's an angle here for locusts as well.
Tax collections fell sharply during the 2009 fiscal year just ended on all fronts. Revenues from sales taxes were down 3.2 percent from 2008, from personal income taxes 6.6 percent, and from corporate tax payments 15.2 percent, according to estimates by the National Governors Association. That reflects the nature of the current recession, which has caused consumers to retrench, capital gains for investors to evaporate, and business profits to shrink.
Albany, N.Y. — States that collect personal income taxes continued to suffer sharply declining revenues as the April 15 deadline for filing tax returns delivered troubling news, according to a Rockefeller Institute of Government report issued today.
The report — “April Is the Cruelest Month” — examined January to April tax collections for 37 of the 41 states that impose broad-based personal income taxes. It showed an overall decline of 26 percent, or $28.8 billion, when compared to the same period a year earlier. April income-tax collections were even worse than those in the preceding quarter, with a drop-off of $18.2 billion when compared to April 2008. April is the month during which states collect the most income tax revenue, because of the filing deadline.
Personal income tax receipts are down 54.9% in Arizona. That's an incredibly large number. What's the real unemployment rate in Arizona?
Overall, 34 of the 37 states covered in the report experienced personal income tax fall-offs, ranging from a high of 54.9 percent in Arizona to a low of only a 0.3 percent drop-off in West Virginia. Three of the 37 states studied — Alabama, North Dakota, and Utah — saw an increase. Data were not available yet for Kentucky, Missouri, Mississippi, and New Mexico.
Preliminary data for May showed further decline. Thirty of 34 states for which data were available reported continuing declines in personal income tax collections. That overall decline was about 25 percent in May.
The National Association of State Budget Officers says 42 states wrestled with budget deficits this spring, the most since the organization began tracking budgets 30 years ago.
"This downturn, even more so than previous downturns, really is affecting every state right now," Sigritz said.
Japan is getting hit by a huge revenue decline as well. Since Japan's economy is doing much worse than the US economy I actually would expect even worse news from them on tax revenue.
The Ministry of Finance said tax revenue stood at 44.3 trillion yen ($458 billion) for the last financial year, below the 46.4 trillion yen forecast in the budget and a 13 percent fall from the previous year, the biggest annual decline ever.
These problems will all pale as compared to what happens when Peak Oil hits.
Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy.
Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.
Companies are finding other ways to save on the aggregate labour cost bill as well, which may be a factor reinforcing the uptrend in the personal savings rate (see more below). For example, a rapidly growing number of employers are now suspending contributions to worker 401(k) plans. According to a joint survey by CFO Research Services and Charles Schwab, nearly 25% of U.S. companies have either suspended their plans or are planning to do so (this is up from 2% at the turn of the year). Again, how we end up squeezing inflation out of the system when the labour market is clearly deflating wages and benefits for the 70% of the economy called the consumer is going to be interesting to watch.
The party's over for years to come. Welcome to The New Frugality.
|Share |||By Randall Parker at 2009 July 04 12:45 AM Economics Business Cycle|