Federal Withholding Tax Collections Holding Steady
On the chart below, you can see that for the trailing quarter ending on September 9, 2011, the annual growth rate of federal withholding-tax collections was 1.64%. And that is pretty much where it was before the stock market sold-off in late July (click chart to enlarge):
Each bar on the chart compares the previous 13 weeks to the corresponding period from a year ago. Since the withholding-tax data is published daily, we can do a trailing-quarter calculation whenever we want. And this chart plots the quarterly growth rate every Friday.
(See the latest update to this chart in the member’s section.)
Since we had a tax cut to begin the year, the first quarter of 2011 shows a steep, but artificial decline (Note #1 on the chart).
In the second quarter, the growth rate stabilized around 3% (Note #2 on the chart). Without the tax cut, it would almost certainly have been up in the 6% range.
But then the Japanese earthquake struck and cut off part supplies to many American companies (Note #3 on the chart). The resulting decline in production was reflected in payroll tax collections, which have since stabilized just under a 2% growth rate.
Conclusions:
1) Without the tax-cut, the growth rate would likely be in the 5% range.
2) We may not have bounced all the way back from the Japan disruption. Will we see further restoration of factory production?
3) With state and local governments downsizing, the fact that we are maintaining a steady growth rate is testament to a still-solid private sector.
Note: at first glance, the black line on the chart looks like a 52-week average – four periods x 13 weeks, right? But the bars are trailing quarters, so four of them actually cover a 16-week period.
