On the surface, today’s monthly budget statement showed good news: in January the US Treasury brought in total receipts of $344 billion, versus outlays of only $293 billion, resulting in a surplus of $51 billion, substantially greater than the $40 billion expected (and well above last year’s $28 billion deficit), a surplus which however was largely due to a law requiring the IRS to delay sending out tax refund checks to household claiming certain tax credits. For the fiscal year through Jan.31, the total US budget deficit was $157 billion, and set to keep rising this year and for the foreseeable future.
However, a more concerning datapoint emerges when looking at the annual change in the rolling 12 month total. It is here that we find that for the LTM period ended Jan 31, total government receipts were $3.27 trillion. This number was 0.3% lower than the $3.28 trillion reported one year ago.
Why is this important? Because as the chart below shows, every time since at least 1970 when government receipts have turned negative on an annual basis, the US was on the cusp of, or already in, a recession. Indicatively, the last time government receipts turned negative was in July of 2008.
One potential mitigating factor this time is that much of the collapse in receipts is due to a 12% plunge in corporate income tax, which begs the question what are real corporate earnings? While we hear that EPS are rising, it is clear that for IRS purposes, corporate America is in a recession.
How about that far more important indicator of overall US economic health, and biggest contributor to government revenue, individual income taxes? As of January, the number was $1.56 trillion, fractionally, or 0.3% higher than a year ago, and declining.
Finally should Trump proceed to cut tax rates without offsetting sources of government revenue, a recession – at least based on this indicator – is assured.