Fourth Quarter Spiked Income and Boosted Taxes

May
01

By Charles Biderman

 

April income tax payments sent in by individuals are surging, up by more than $50 billion over April 2012 and higher by $63 billion year to date. That means to me that year end 2012 income from asset sales and bonuses had to have spiked by around $300 billion to generate that $63 billion in bigger tax payments. I know, this is a lot of numbers and some of you should read the transcript instead of this video. To go back, in other words anticipation of this year’s higher taxes created a one time 10 percent pop in income over those few months the $300 billion became income!

 

And all you GDP watchers out there will never see that pop. Why? The US Bureau of Economic Analysis, which puts the garbage in garbage out GDP number, in its infinite wisdom ignores capital gains as well as any and all real time data. Why? Who knows. You ask them, they won’t answer me.

 

So no wonder the economy looked great to start this year. The $300 billion income spike created a very rosy glow particularly since none but us at TrimTabs were saying that the year pop in income was a one time event. Checking my year end videos I was guessing $100 to maybe $200 billion in higher income, not $300 billion.

 

Right now, over the past three weeks, wage and salary growth has slowed to less then 3 percent year over year, and that is before inflation. In other words, anticipation of higher taxes boosted economic activity at the end of last year and to start this year. Now that all the new money has been spent, the US economy is back to no growth.

 

I love watching those on CNBC who worship at the church of what works trying to defend record stock prices with the argument that the economy has to be improving or else stocks would not be going up.

 

Really? These guys obviously do not understand that all there is in the stock market are shares of stock and money. There is no earnings or interest rates in the stock market. Just shares of stock and money. So when the Federal Reserves is creating $85 billion in phony money each month to buy financial assets for the foreseeable future, what difference does it make what earnings or the economy is doing?

 

That is as long as companies are not selling huge amounts of new shares. And announced corporate buying has been exceeding all visual corporate and insider share sales since February of this year. Indeed, Apple’s $50 billion new buyback underlines that trend.

 

Therefore, more money mostly from government printing is greater then any growth of shares available. For as long as that continues, stocks will keep going up, regardless of what the economy does.

 

So to summarize, since the perpetual QE was announced in last September, the market value of US stocks is up by $2.4 trillion, or 13%, and wages and salaries are now growing by about $200 billion a year, or just under 3%.

 

To get to where we are now, $2 trillion of phony money a year is being created, $1 trill by the Fed and $1 trill by the Government. That $2 trillion is equal to $30% of the $7 trillion in after tax income for everybody who pays taxes. So it takes adding 30% of phony money to grow stocks by 13% and take home pay by 3 percent.

 

In the history of this planet money printing as a long term solution always works initially but then results in government bankruptcy.

 

How will it end this time? My guess is that initially at some point in the next few months the Japanese currency will plunge to 200 to the dollar, much more then the Japanese Central Bank wants. That will create financial panic in the Japanese consensus based society. After that the Euro will be next then followed the US dollar, forcing all three economies into a sort of bankruptcy.

 

But after the governments get out of the way the incredibly robust online world will flourish creating an unprecedented global prosperity.

 

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18 Responses to Fourth Quarter Spiked Income and Boosted Taxes

  1. Cornel Campeanu on May 1, 2013 at 2:47 pm

    Resources CRASH dead ahead. Even GOLD will MELTDOWN.

  2. Pam on May 2, 2013 at 4:50 pm

    Are you anticipating a low jobs number Friday? I read the following contrary analysis on tax data anticipating a blowout jobs number:

    “The real time withholding tax data, which showed strength throughout April until a dip at the end of the month, suggests blowout payroll numbers. It’s hard to fathom how professional economic forecasters can miss the weekly claims estimates for the past two weeks on the weak side given this data.The consensus forecast of economists is for +155,000 in seasonally adjusted non-farm payrolls. That would be a 1.46% gain on a year to year basis. Withholding tax collections covering the pay periods including the reference date of the 12th were up an average 12.3%. Adjusted for earnings inflation and the increase in tax rates would imply a real rate of gain around 2% to 3.3%.”

    How does this correlate? Thanks for any insight.

    • cbiderman on May 2, 2013 at 8:14 pm

      On our blog site you can find a release where we estimate about 70,000 new jobs in April. Not sure what evidence you are referencing for improved withholding data. Our analysis, after year over year increases in taxes shows very modest growth.

      • Tom Sullivan on May 3, 2013 at 11:18 pm

        Where is the “release where we estimate about 70,000 new jobs in April”? Every month I enjoy seeing your estimate of jobs created. This month I cannot find it.

        • Henry on May 11, 2013 at 12:59 pm

          Biderman is wrong. There were no April numbers posted on the blog.

  3. William on May 3, 2013 at 1:58 am

    I personally expect the USD/Yen to go to the high 50s or low 60s.

    • Ed_B on May 12, 2013 at 12:20 am

      An interesting thought. On what, if anything is this based?

      I’m pretty much in the opposite camp, thinking that the USD/Yen number will top 200 and perhaps reach 250 before the yen crashes and burns big-time. I am invested in the double short yen ETF, YCS, at the moment and it is up by about 18% in the past couple of months. Japan is printing money faster than the Fed based on the size of its economy and the amount of yen currently in circulation. The amount of yen in circulation could well double over the next year or two. If so, then the value of the yen should fall by at least half. The USD remains as the best looking horse in the glue factory, so is gaining in strength as foreign money comes into US equities and as foreign currencies are swapped for USD.

      At some point, all this will end but I believe that we will have two trip-wires that will warn us of an impending USD collapse and they are significant. The 1st will be the collapse of the yen and the second will be the collapse of the UK pound. Very shortly thereafter, the USD will be in imminent danger of collapse itself. Got any hard assets?

      I very often agree with Charles on many economic and financial points but his attitude about governments getting out of the way and prosperity necessarily following that seems more than a bit Pollyanna-ish. Since when have governments EVER just willingly relinquished power over anything? I’m 63 years old and can’t remember a single instance of this ever happening, although perhaps it has and I am simply unaware of it. Perhaps he is saying that governments will collapse and therefore be UNABLE to continue to control and distort the national and world economies and that therefore due to this lack of government interference, prosperity will then occur. If so, then I can see some agreement on that point.

      • William on May 13, 2013 at 5:49 am

        1. The Yen is a “Carry Trade” currency. Borro yen and invest in higher yielding USD or Eur denominated assets.
        But when that trade (sooner or later) must be reversed, then the Yen WILL go hihger against (at least) the Eur and USD.
        2. Japan is NOT (literally) printing money, it’s monetizing debt. And that monetizing debt game must/willbe reversed as well. and that will push the Yen hihger, not lower.
        3. “Expect” was not right word. Perhaps I should have used the words “I wouldn’t be surprised”.

        • cbiderman on May 13, 2013 at 1:58 pm

          Why borrow Yen short term these days when the US$ is just as cheap?
          Regardless of how the Bank of Japan is doing it, there is more Yen available to buy assets in Japan.

          • William on May 13, 2013 at 3:53 pm

            The japanese 10 year yield is lower the US ten year yield.

          • cbiderman on May 13, 2013 at 5:44 pm

            Nobody I knows borrows against the Japanese 10 year, except of course for those going short the 10 year.

          • William on May 14, 2013 at 4:30 pm

            You’re right. No one borrows against the 10 year yield.

            But the USD/yen going down offers an opportunity to lend in yen and invest in e.g. USD denominated assets. That could be a reason why the DOW JONES is going up. When the USD goes down the its profitable to borrow USD and go long e.g. EUr denominated assets.

            But sooner or later the Yen goes higher, and that’s toxic for the carry trade and the DOW JONES. Even the DOW going down is toxic for the carry trade and that will push the yen higher. It forces the carry trade to unwind and push the yen higher from here.

  4. Pam on May 3, 2013 at 4:11 am

    Your analysis and estimate seem more consistent with other recently reported economic data and the reality that I observe, but we’ll see the government’s number in a few hours. It’s just very difficult to understand why there’s such wide variation in the forecasting, given the advanced technology available. The government needs to update the gathering and reporting of data. (Hey, there’s a few thousand productive jobs created, but I guess transparency is not the goal.) Either way, I greatly appreciate your blog and the information you share!!

  5. black dog on May 4, 2013 at 3:22 pm

    Pam – I follow the Treasury daily/monthly statements. Unfortunately, the daily statements lump together withheld payroll tax and withheld income tax . The monthly separates the two – hard to know increase from payroll tax full re-instatement until the monthly comes out (8th business day following month.

    Another point of concern – ACA (obamacare). Per ACA a person is considered full time worker if they work 30 hours/week (and needed to be included in health insurance for qualifying firms). I think 2013 will see firms cutting hours (if not lay off) of full time employees and replace with part timers (or outsource work somehow – 1099ers?)… possibly giving the payroll hiring an artificial boost of sorts (yesterday’s NFP gave a confirmation of sorts with avg hours worked week dropping from 34.6 to 34.4).

    • cbiderman on May 6, 2013 at 5:01 pm

      In the past I too followed the Monthly Treasury Statement, but over time realize that the breakdown between income and employment taxes is a guess and wildly revised at year end.
      Therefore, I ignore the Monthly.
      Charles

      • black dog on May 6, 2013 at 5:25 pm

        thanks for the revision tip.

        withheld income and employment tax collection

        april 2012 … $148.5 billion
        april 2013 … $163.5 billion

        considering the tax increase AND year over year employment/wage gains AND april 2013 extra reporting day … not strong … not strong at all

    • Ed_B on May 12, 2013 at 12:25 am

      Re: ACA

      I agree and also expect to see some companies trading employees so that they can work 20 hours per week for one employer and then a 2nd 20 hours per week at another employer. The trick will be to do this between companies with businesses that are sufficiently similar so the employers can do the necessary work but that also do not compete directly with each other. If there is ANY way to escape from under this program, it WILL be found and companies WILL use every possible escape route.

  6. Pam on May 6, 2013 at 3:43 am

    Good to know; thanks Black Dog.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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