Each business day, the United States Treasury Department publishes a report on the workings of the government’s income and spending. One of the items on this report is the “Withheld Income and Employment Taxes.” (Here in the USA, workers have taxes automatically deducted from each paycheck.)
Using these tax collections, we can get a real-time feel for how well the economy is doing every business-day. Other data, such as unemployment claims, jobs-creation, etc. are only published weekly or monthly. This data is also not seasonally adjusted, estimated, or massaged in any way. The Treasury simply reports how much money they collected.
Data on jobs also do not tell us much about the quality of the jobs. Is it a good thing if three new jobs were created? Maybe, but what if one highly-paid worker was fired, and four minimum-wage workers were hired? Is the economy doing well, or not? In such a circumstance, it is entirely possible that the five workers involved have lower combined income. The tax data gives us a better insight because it gives us a read on the grand total of all employment in the economy.
This data is also not widely followed. Economists don’t like simple bean-counting. They would rather perform exotic calculations using elaborate models, surveys, and analysis. That’s their job security. So, while this data gives a far superior insight into the economy, it will likely maintain its low-profile, and edge, indefinitely because economists will continue to tell their bosses that much more elaborate analysis is required.
Tax data is the ultimate “hard data” but it does come with considerations – especially when tax rates change. If tax collections go up or down, was it due to the economy, or the rate-change? Please see this page for a discussion of the 2011 tax cut.
However, from a higher-altitude perspective, tax-rate changes do not substantially alter the long-term trend of tax collections. In a recession, when employers are doing mass layoffs, tax collections are going to fall no matter what the tax rate is. And when the economy is expanding, tax collections will rise as hundreds of thousands of jobs are created each month. In other words, it is very difficult, maybe impossible, for tax rates to put a dent in our year-over-year growth rate charts such as this one.
