Remember that the January number was dramatically boosted by the tax changes for FICA. That sounds good except that it flows directly to the deficit - that is, we're simply kiting checks. Now that one-timer has gone through the system.
How's it working out for consumers when one looks at actual purchasing power?
Real disposable income decreased 0.1 percent in February, in contrast to an increase of 0.5 percent in January. Real PCE increased 0.3 percent, in contrast to a decrease of less than 0.1 percent.
The one-timer in January masked what was otherwise an 0.3% decrease. Now it's gone. The money-printing simply shifted where the negative number showed up - in this case, on the government balance sheet. But again, that was a one-time deal and now the impact has been taken, and in February we got to see the impact of an actual decrease in purchasing power. The "make me feel richer" attempt from that tax change, however, did result in a bump in spending. Remember, this is February - before all the fund in Libya, Japan and elsewhere.
The January change in personal contributions for government social insurance reflected the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which temporarily decreased the social security contribution rate for employees and self-employed workers by 2.0 percentage points for 2011, or $105.4 billion in January.
WHAT?! $105.4 billion in change in tax receipts in one month? Please tell me I'm reading this wrong - I thought the CBO said this change in the tax code was a $400 billion deficit addition for the full year. How did we get over a hundred billion in one month? That can't be right - that would be close to half of the entire federal income and social insurance tax receipts from this one change! If this is anything close to correct we're in much more trouble than I had first thought in terms of tax receipts and deficits. My current estimate is about $2 trillion for Calendar Year 2011; this would boost that to near $2.5 trillion!
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