Tuesday, January 13, 2009

Payroll Tax Revenues Keep Rolling in Q4

One indicator of labor market activity is the collection of payroll tax revenue by the U.S. Treasury, released today through the end of calendar year 2008. This has an advantage over other measures because it is comprehensive -- it counts all the dollars rather than just gathering a sample of employers. It is also a high stakes measure -- an employer has no reason to tell the Treasury that he is paying employees -- and then pay tax for them -- when in fact he is not.

A disadvantage is that Treasury collections are not seasonally adjusted, and can fluctuate due to quirks in the tax rules. For that reason, I focus on payroll tax collections for "Employment and General Retirement" because the rules for those are pretty simple as compared to the rules for individual income tax or corporate income tax.

Payroll tax revenue in Q4 (Oct, Nov, Dec) was $213.67 billion, as compared to $202.024 billion in Q3. That's an increase of 5.6% (at a quarterly rate)!

Note that, in the couple of years prior to 2008, payroll tax revenue fell a bit Q3-Q4 (in part, I suspect, because some workers go over the payroll tax gap in Q4). Thus, I suspect that seasonally adjusted payroll tax revenue growth Q3-Q4 would be even higher than 5.6%.

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