Is The Economy Improving As Tax Revenues Are Growing?
Econintersect LLC | May 26, 2012 08:25AM ET
Many pundits use Federal Government revenues as a pulse point for understanding the economy. If government revenues are a good tool, then the economy over the last two months should be expanding robustly as revenues are growing in double digits. It makes sense – all things being equal – that increased tax revenue means people and business are more profitable and / or sales are increasing.
On average since 2000, government revenues have averaged a 2.5% increase year-over-year (GDP has averaged 1.8% year-over-year growth).
Some tax revenue is coincident with economic activity, but all important profits would be a lagging indicator as profit should be unknown until the end of a calendar year. For me, little is revealed by looking at government revenue. The primary problem is that it lags and is very noisy (I will ignore changing tax laws) – and is poor in spotting a recession. The graph below uses the government revenues, and shows year-over-year change.
One cautionary note: Although still growing year-over-year, the rate of growth in personal withholding revenues Click here to view the scorecard table below with active hyperlinks.
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