Q2 Federal Withheld Income Tax Receipts Plunge A Record 25% From Year Ago Levels
In Q2, federal withheld income tax receipts declined a record 25% from the same period one year ago. That’s twice the reported decline in Q2 household and payroll employment.
The sharper plunge in tax receipts is puzzling because the majority of reported job losses, according to the Bureau of Labor Statistics (BLS), are centered in lower-wage industries, such as recreation, leisure, and retail trade.
If job loss were heavily concentrated in the lower-wage industries tax receipts should be off much less than twice the reported declines in household and payroll employment.
The estimated record drop in federal withheld income tax receipts are based on actual data for April and May and an estimate for June from the Congressional Budget Office (CBO). The actual June tax data will be released in a week or so.
CBO estimates that in June gross withheld income taxes fell only 1% from year-ago levels. But CBO correctly points out that June 2020 had two fewer workdays compared to June 2019. Adjusted for the number of workdays June tax receipts were off double-digits, but still much less than the declines recorded in April and May.
The record collapse in federal tax receipts raises questions over the accuracy of the household and payroll employment data. BLS has noted that the responses for the household survey and the collection rates for the payroll or establishment survey in Q2 were well below the averages of the past year. Potential errors could exist not only in the number of people working, but hours worked, and wages.
Congress will soon be debating whether it should provide a second round of stimulus checks while also extending additional unemployment compensation. The record drop in tax receipts indicates both measures are needed.