Thursday, May 4, 2017

Are Surging Withholding Taxes Telling Us Something?

A withholding tax, also called a retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income.

Many experts are citing surging withholding tax collections in April as an indication that the US economy is ready to take off.

The Economic Activity Composite (EAC), a trend that includes the Federal Budget Oscillator and Leading Federal Budget Oscillator - includes withholding taxes (chart 1 and 2), paints a slight more realistic and pessimistic picture.  At least for now.

Chart 1

Chart 2

Headline: Withholding-Tax Collections Continue Moonshot in April

The growth-rate of withholding-tax collections advanced from 6.28% in March to 6.95% for April. This is the strongest growth-rate since the payroll-tax cuts expired in 2013, and it became possible to do apples-to-apples comparisons again. You really couldn’t ask for a stronger number.

Last month’s non-farm payrolls report was surprisingly weak at only 98,000 new jobs. But in light of the continued strength in the withholding data, that 98,000 should be revised upward.



Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.