U.S. posts $119B budget surplus in January; first in over 2 years
reuters.com
reuters.com
> 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.
[1] https://www.cooley.com/news/insight/2020/2020-08-06-fcc-rule...
[2] https://www.dwt.com/insights/2018/10/fcc-adopts-final-licens...
If it has to be recognised annually then roughly $70B/10-15 years is the annual value.
Was pretty shocked when I saw this because the corporate rate cut was huge. Perhaps offset by SALT changes
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!
If it was primarily due to one time realizations, you would expect a spurt shortly afterwards, followed by decline.
The 2017 tax change pulled taxes forward from subsequent years.
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.
To be honest, I would have expected a much bigger decline
> 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.
"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).
It (and “supply-side economics” in general) is not a serious economic theory.
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.
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.
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.
so this years was bigger than the two years before (hence the biggest)
which would suggest a positive/growing trend
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.
>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).
The dropoff in covid spending since congress is in a stalemate and didn't extend programs has clearly got to be the key here, right?
When else have we had a YoY significant drop like that? Especially without being phased out with a taper.
(No matter what everyone wants to argue about over receipts also going up. The why isn't as important because the what isn't uncommon.)
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.
Last 20 years of annual deficits, for reference: https://datalab.usaspending.gov/americas-finance-guide/defic...
Bonds have a date and the government will need access to the bond market to finance stuff.
If the inflation is higher than the nominal rate on the bond, there would be fewer and fewer takers.
You cannot hold equities, or bonds which could lose value for such purposes.
If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if you were in cash
At 7% that is still better deal than cash
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.
So you can be stuck with 2% today, or wait a short amount of time and possibly get 3-4%
Bonds are mispriced right now. Of course, just my opinion.
Unless you're a U.S. (net) taxpayer, in which case you're paying yourself back and any interest you might get from the bond is purely illusory.
It's a good deal if you're not a U.S. taxpayer, though.
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.
However if it does sustain, the $15,000,000,000,000 in debt maturing in less than 5 years will be very hard to refinance at the same interest rates.
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.
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
If we get a few more bad CPI prints, expect rapid rise in longer term treasury yields.
Wouldn't be surprised to see 3% on the 10yr within a few months. Could go even higher if strong evidence of entrenched wage price spiral emerges
With the money they create out of thin air.
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”.)
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?
When normal banks give you loan, do the deposit holders also not "have" the money?
The banks create money, just not out of thin air: there's something of equal value exchanged in return
https://fred.stlouisfed.org/series/MTSDS133FMS
That's one convenient way to get this data series (and most other economic data, at least for the US).
https://www.youtube.com/watch?v=LxJW7hl8oqM
TLDR; Government debt is private sector surplus. Government surplus is private sector debt.
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.