Tax receipts going south - what does it mean?

 

While the focus has been on the debt ceiling, you really cannot separate this from tax receipt issue. if the government spends today, it must come from either current tax revenue or future tax revenue which is delayed through financing. Borrow today but it will have to be paid in the future or it requires continual rolling the debt.

Tax receipts decline when you go into a recession. Less economic activity and there will be less income taxes, less corporate taxes, and less capital gains. The government must borrow to stay even with expenditures. The yearly change in tax receipts shows the stark effect on government financing. Obviously, any cut in taxes as growth slows only makes the picture worse. 

The current numbers are clear. Tax receipt growth has turned negative and that is not a good signal. There are periods when the change has moved negative but we have not had a slowdown but that was also a period that required the Fed to reverse course from starting raise rates and employ QT. While the recession risk forecasts have fallen, there are still signs of a slowdown.