The US Daily Cash Surplus for 7/12/2013 was $0.7B bringing the July 2013 deficit through 12 days to $76B. Revenues are still showing some weakness…at 4% YOY growth, but there is a good chance that improves a bit this week as corporate taxes start flowing in. Furthermore, the extra day over 2012 should give July 2013 a ~5% bump at the end…at August’s expense.
The US Daily Cash Deficit for 7/11/2013 was $4.9B bringing the July 2013 deficit through 11 days to $77B. Revenues are still trending low at 4% YOY gain. Next week could bring a change in fortune, as the 15th usually brings a spike in revenues….hopefully it will be enough to bring that YOY back up to 10% or so.
There is one interesting data point I would like to point out…business tax refunds are up 77% from ~$1.1B to ~$1.9B compared to last year. At less than $1B, it’s really not material, just interesting. So far, gross corporate taxes recieved are down a bit, but essentially flat YOY…we’ll know by the end of next week if the refunds numbers are an ominous sign that corporate taxes are headed down, or if it is just an immaterial timing blip.
One of the first challenges I faced when I decided to use the treasury department’s “Daily Treasury Statement” was to reconcile the thing to other external data points like the debt outstanding and cash balances as well as internally reconciling the tables within it to make sure I understood the report inside and out, and furthermore, trusted it. In this quest I ended up stumbling on one thing I could not answer…the “Cash FTD(federal tax deposits)” category in table II…which makes up over 2/3 of all cash deposits never tied to table IV, which summarizes tax deposits by type, like withheld income, corporate taxes ect… It was perpetually short by a category labeled “Inter-Agency Transfers”
It took some back and forth, but the good folks at Treasury provided the clues I needed. This imbalance..$82B over FY 2012 is due primarily to the affect of FICA taxes and Income taxes withheld from the paychecks of federal employees.
Before we look at that, lets start by looking at a regular employee of a fortune 500 company. Say the person has an annual salary of $100k, $25k of which is withheld from the paycheck and submitted to the federal government by the company. This $25k (plus another $7650 for FICA) shows up on the DTS as cash received in the “CASH FTD” category.
Now….let’s use the same example, but this time the employee works for the federal government. Each year…the government sends the employee his $75k of cash….but what to do with the $25k of taxes withheld? Transfering $ from one bank account to another has no net affect on cash in this scenario…unlike when it was submitted by the fortune 500 company. The plug is “Inter-Agency Transfer…essentially an intercompany elimination. This is why we have the $82 difference. That $25k of taxes “paid” by the employee show up in the official tax receipts number…even though no marginal cash is ever received…it just gets shuttled around from one federal bank account to the next…netting out to zero. 82B per year!!
Looking at this from another angle…say the federal government has revenues of exactly $1T, and the economy is perfectly stable…no change in employment, no raises ect…everything is constant. Then, the government decides to hire our employee for $100k per year. When all is said and done…government revenues have stayed exactly the same, even though income is up $100k, and reported income taxes are up $25k. Contrast that to if the employee was hired by a company…then government revenues would have increased by $25k+. Isn’t that something? The federal government could go out and hire 5M people….and it would have exactly no direct increase in cash inflows. Or…you could fire all of the current employees…and cash inflows would not drop a penny.
So what is going on here? Essentially, the cost associated with federal employees income and payroll taxes, and the revenue they represent, net to zero. The affect is…that the federal government can essentially hire identical employees, yet effectively pay quite a bit less than a company would bringing up an interesting point….that in the end, consumers pay all taxes. In order to get $75k of cash to the employee, a company has to pay $100k because Uncle Sam want’s his “rent”….as if he owned you. That cost…is pushed all the way through the value chain and ultimately ends up on the retail shelf, raising the cost of everything…probably by a factor of nearly 2 when all is said and done. Ponder on that for a while….you can raise taxes on whoever or whatever you want in the short run, but in the long run, the economy re-adjusts back to equilibrium…with higher prices for everything as the plug.
So…to answer our question…while government employees end up with the same after tax pay as a corporate employee with similar gross pay does, their income taxes more or less manifest themselves as a discount to the federal government rather than cash receipts or actual revenues. I think that the reality is…not only do Federal employees not pay income/payroll taxes…none of us as individuals do. Instead…our employers essentially pay a consumption tax on our labor pushing the cost of a $75k per year employee up over $100k. If there were no income/payroll taxes, our employee’s take home salary would still be around $75k…but it would go a lot further because the price of everything would be 25-50% lower. Instead….consumers simply pay more. Our employer pays over $100k for a $75k employee just like at the grocery store, you pay $2, for a $1 loaf of bread.
The US Daily Cash Deficit for 7/10/2013 was $9.5B pushing the June deficit through 10 days to $72B. With 1/3 of the month gone…revenues are up a meager 4%. This will be helped some by an extra day vs 7/2012…perhaps as much as a $10B (or 5%) bump, but August should give that right back. Outlays…adjusted for timing look more or less in line with last year, perhaps a few billion lower.
Over at money.com Jeanne Sahadi has a front page article that is trending U.S. books $117 billion surplus in June. It’s not a terrible article, but the ignorance displayed in the comments section is a bit frightening. Everybody thinks we are saved….We aren’t. No doubt, 2013 is going to be a material improvement, but it is still going to be a $700-$800B deficit. So yeah…it’s great that we aren’t blowing through $1.6T per year anymore like we were not that long ago…. but $800B per year…with $17T accumulated…no matter how you look at it…that’s a huge hole, and we’re still digging at a ferocious pace.
Above is the latest output from the model I use. We can see clear and steady improvement from 2009 forward as revenues picked up and cost was more or less held constant. There is no rocket science in the model. After spiking 12% or more in 2013 on tax hikes, I assume most revenues will grow at 5% in 2014 and 4% from there on…more or less in line with historical patterns. On the cost side, I assume 2% or so annual growth from 2014 on for most outlays, with a few notable exceptions. Social Security grows at 6-7%, and interest grows along with debt outstanding, but it held at about a 1.8% effective rate…extraordinarily low. For Medicare, Medicaid, and the Affordable Care Act, I use the CBO’s numbers. Using these fairly simple, and I believe realistic assumptions, I show we bottom out in 2013/2014 on increased revenues, before heading back up as spending increases on Social Security, Interest, and Healthcare outpace and run away from the modest annual revenue gains. Note…this all assumes no recesions, crashes, wars ect… although historically, it seems quite unlikely we will go another decade with out some kind of economic disturbances. I guess what I am saying is tis may end up being a conservative forecast unless the CBO is correct, and we manage to string together a few more years of 10%+ revenue gains. We all know anything is possible, but historically, it seems quite unlikely. Guess we’ll have to wait and see.
The US Daily Cash Deficit for 7/9/2013 was $6.4B bringing the July 2013 deficit through 9 days to $62B. Revenues were a bit light, even for a Tuesday, bringing down the YOY growth for the period below 5%, but it’s still early in the month, and strong finishes seem to be the pattern lately. Still…with the debt limit on the horizon….Treasury is going to need every last nickel to make it into October (and the new Fiscal year)…5% revenue growth will not get them there.
I don’t suppose it really matters in the big picture whether the default date is 10/3 or tomorrow….however, I suspect they want to get to the new FY because it will allow them to somehow shift some additional cost out of FY 2013 and into FY2014. This way….they can post a spectacular 2013 official deficit number, perhaps as low as $600B, and use this as evidence that Obama’s tax hikes and cuts are on path to fixing the deficit. Never mind the gimmicks…like the payday loan from Fannie Mae…getting a good 2013 number in the books gives Obama and the Democrats something to talk about all year long, even if it is unsustainable.
