Good, Not-So-Good News, and Bad News on federal receipts 

First the good news: Federal tax collections in June, an important month for receipts because of payments due from those who pay quarterly estimated taxes, are up from June of last year.

The not-so-good news: Collections are nowhere near where they were in June 2008, the seventh month of the recession as determined by the supposedly erudite academicians running the National Bureau of Economic Research (the recession as normal people define it began in July 2008, when economic growth went negative for the first of four consecutive quarters.

Then there's the bad news: Collections aren't going to come back much more during the rest of this year as long as unemployment stays between 9%-10%, government-induced uncertainty remains omnipresent, and strangulation by regulation as exemplified by what Investors Business Daily has called "Financial Deform" continue.

Here are the key numbers for June 2010, 2009 and 2008 (2010 amounts are estimates, based on the June 28 Daily Treasury Statement and reviewing previous years' results; 2009 and 2008 amounts come from the last Daily Treasury Statement from each year; it ignores relatively minor receipts from other sources):

 

As you can see, net receipts from the key sources listed are up, but they're less than halfway back to where they were in June 2008.

Another good-news, bad-news point: Income taxes paid by corporations have jumped considerably from last year, but directly paid income and employment taxes paid primarily by those who are self-employed or who interests in "passthrough" entities like partnerships, Subchapter S corporations, and limited liability corporations are flat. This reflects the fact that larger companies have fared relatively well during the recession and subsequent "recovery," while smaller companies and entrepreneurs have not. This does not bode well for job growth, as smaller entities have collectively created many more jobs than large ones during previous recoveries.

The collections story also casts doubt on the jobs numbers themselves.

That's because every month, the government tries to estimate how many jobs have been created that they literally can't find, along with how many that might have disappeared without notice. This exercise is embodied in something called the Birth/Death model. The model, employing calculations based on previous seasonal and cyclical behavior, estimated that 188,000 net invisible jobs were created in May, and 215,000 in June. The model's ultimate effect on the monthly reported job growth or loss is not as great as those numbers might lead one to believe because of seasonal smoothing.

That said, if general uncertainty is really holding small business start-ups back (which I believe is the case), the Birth/Death model is causing the government to paint a prettier picture than really exists.

All of this ultimately gets corrected in annual comprehensive adjustments early each year. But in the meantime, the stagnant non-withheld collections at the Treasury Department seem to support the notion that the government is exaggerating the economy's real job count.

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Tom Blumer

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