Sep

2

Wag the Dog, from Bill Rafter

September 2, 2013 |

 In our shop we monitor various forms of taxation because (a) the reports are the only daily macroeconomic data other than price, and (b) the data is raw and as such unintelligible to the journalists, who consequently ignore it. Regarding the latter point, most people wind up getting their information from journalists, which as a competitor I think is great.

What we know:

First, the Non-Farm Payroll report is due out this coming Friday. It's going to be weaker than currently imagined. Big time. Note that there was an effective 2 percent increase in payroll taxes starting in January. In a perfect world a non-thinking bureaucrat (excuse the redundancy) would expect a 2 percent revenue increase. But people (and employers) vote with their feet so to speak, and the bureaucrats get less. So much less in fact that the YOY payroll tax growth is now negligible. For those of you familiar with the work of Art Laffer, this exemplifies his famous curve. Some of the decline in payroll taxes may be a result of the sequester. But it does not matter; the point is that when one considers the tax increase, there is a decline in the growth of hours_worked * wages. There is no way to paint a smile on that information.

Second, tax filings by corporations show negative YOY growth that just started recently and has not happened for some time. That is perfectly logical as businesses are curtailing expansion because of Obamacare, and for lots of reasons are flush with cash. What they should be doing is investing, but that's not happening now. Given the amount of cash around, one would also expect more M&A activity. Not significant there.

Third, tax payments by individuals other than payroll deductions have negative YOY growth, pretty much in parallel with the corporate filings.

Fourth, growth rates of import duties and excise taxes, good surrogates for discretionary retail spending, are negative YOY. Big time.

I have put up charts of the above (1, 2, & 3) recently, but if anyone has a specific request, I will accommodate.

Opinion/analysis:

Can someone be at the pinnacle of power and be grossly incompetent? Of course. It's hard to think of a Presidency that has not done something egregiously stupid. However at some point you have got to say to yourself, "they simply cannot be that stupid; there has got to be another reason." That's where I am at now.

I think Syria is a Wag the Dog scenario. The questions are why, and what are they covering up? From my foregoing information I think it's the economy. By the way, I am not implying any illegal actions on the part of anyone. Some doctors do not tell their patients the full truth, so why should we expect something different from our political leaders.


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