Falling tax receipts pose a debt-ceiling dilemma

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The federal government’s tax collections haven’t been growing much recently. That could be a warning about the health of the American consumer and, by extension, corporate earnings.

It also has some implications for the Treasury’s upcoming collision with the debt ceiling.

Until recently, analysts were forecasting a hard deadline of October. But White House budget director Mick Mulvaney said last week that tax receipts have risen less than expected this year, and warned the ceiling would therefore be breached in August without any policy changes.

The data appear to support Mulvaney’s point. Treasury Department reports show that federal tax receipts declined year-over-year in the second half of 2016. That’s the first time they’ve fallen over a six-month period since the recession. (Receipts grew again in January, February and April, but not by enough to make up for the decline.)

This poses a dilemma for Wall Street analysts.

If any one calls too much attention to anaemic tax collections, that could make people worry about the state of the US consumer and the long-in-the-tooth economic expansion. (Not that anyone’s doing that, ahem ahem.)

But bankers also want the US to raise the debt ceiling, since finance types generally agree that it is a good thing to get paid. (Also because not doing it would be bad, etc.)

Goldman Sachs figured out how to reconcile these competing priorities with some rather impressive statistical gymnastics, arguing that (1) Congress should raise the debt ceiling in August and (2) the US economy and consumer are doing JUST FINE, THANK YOU.

The analysts use daily tax withholdings data as evidence of a nascent rebound in federal revenues. Those data are notoriously tricky to analyse because of variations in the calendar, payroll dates, and other factors.

To account for the swings, the analysts introduce “a large

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About Alexandra Scaggs