Tax Revenues are FALLING (not good)

I teach active investors how to get higher returns with less risk by learning how markets actually work. Join Heresy Financial University: https://bit.ly/hrsymbr 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
You may have seen floating around social media recently tons
of posts claiming that the IRS collected a record four
point nine trillion dollars in taxes this year. Well, not
only is this not true, but the reality is actually worse,
and so we're going to take a look at what
actually took place with the IRS and tax collection for

(00:23):
twenty twenty three. Number two, we're gonna take a look
at what the result of this is, what they have
to do to make up for a shortfall. And then
number three, obviously we're gonna take a look at what
this means for the markets, because this will, or at
least it should have an impact. So you may have
seen posts like this saying that the IRS raked in
a record four point nine trillion in taxes last fiscal year.

(00:47):
And the reason why I think this is right now
circulating around social media is because of this post that
I found from the Journal of Accountancy. It was published
recently on January fourth of twenty twenty four, and most
people are mistaking this because they show that the IRS
collective four point nine trillion in total taxes, but it's
for fiscal year twenty twenty two, So I think most

(01:09):
people are just not thinking with the year change going
to twenty twenty four. They see twenty twenty two and
think last year. No, this is actually two years ago.
As we can see from the Federal Reserves website, the
four point nine trillion dollar number came in in twenty
twenty two. So what actually happened for twenty twenty three. Well,
the reality is tax revenue actually fell. If we go

(01:32):
to the federal government's website Fiscal Data dot Treasury dot gov,
we click on revenue and we can see the current
year to date figures, which shows that the government has
collected six hundred seventy eight billion dollars in taxes just
in this fiscal year to date, which is up nineteen

(01:53):
percent from the same couple of month period last year.
But what we really want to know about is what
took place during the entire fiscal year of time twenty
twenty three, And here we can see that tax revenue
from twenty twenty two to twenty twenty three actually declined.
In twenty twenty three, they collected a total four point
four to four trillion dollars in taxier twenty twenty three,

(02:13):
which was down from the four point nine they collected
in twenty twenty two. So last year the federal government
took less in taxes than they did in twenty twenty two. Now,
if you're anything like me, your initial reaction is, yes,
I can't stand how much money Uncle Sam takes from
people every single year. It's the most patriotic thing you

(02:33):
can do to pay as little as possible in taxes,
because if you believe that the government has your best
interest at heart, you want to follow the rules that
they've given you by taking advantage of all the deductions
and credits that they give you, because they say that
those will make the country a better place. So, if
you love your country, it's the most patriotic thing you
can do to pay as little as money as possible

(02:55):
in taxes. So when you see that the government takes
less in taxes, you think that's a great thing. I'm
gonna shell you why this is actually usually associated with
severe economic pain. Back on the Federal Reserves website, we
see total Federal tax receipts. This is the revenue that
the government takes in taxes every year, and we can
see that the majority of the time this line just
goes up, which means that every year, usually the government

(03:17):
takes less in taxes than they did the year before.
But let's zoom in here to the very beginning of
this data collection, nineteen eighty one. We can see that
tax revenue declined to nineteen eighty two, and this gray
bar indicates that that decline preceded and happened then into
a recession. Moving forward a bit into time, we can
see that tax revenue really took off in the late

(03:39):
eighties and then stagnated from nineteen ninety to nineteen ninety one,
barely increase it again right into a recession. Going forward
a little bit farther into the future, we see the
years two thousand to two thousand and one tax revenues
declined and then again into two thousand and two, again
tax revenues declining into a recession. Fast Forwarding into the

(04:01):
future a bit farther, we see tax revenues peaked again
in two thousand and seven, declining into two thousand and eight,
declining again into two thousand and nine, resulting in yet
again another recession. Tax revenues really picked up again and
then peaked in twenty nineteen, tax revenues declining again into
twenty twenty, resulting in yet again another recession, which means

(04:22):
since nineteen eighty, for the last forty years, every single
time tax revenues have declined, we have seen a recession
every time. And yes, this recession in nineteen ninety one
happened without a decline in tax revenue, but it did
happen with a stagnating for one year of tax revenue.
But it still stands. Every time tax revenue declines a

(04:43):
recession has happened since nineteen eighty, that is four decades.
And yet again, from twenty twenty two to twenty twenty three,
we see another year in which tax revenues decline. Unless
a correlation that has happened one hundred percent of the
time for forty years now happens to be wrong, we
are going to get a recession in twenty twenty four. Now,

(05:03):
this isn't causation. It's not that the drop in tax
revenue causes the recession. It's likely the opposite, or there's
a third factor that causes tax revenues to drop that
also results in a recession. That makes sense. People have
less money, people spend less, people deleverage, people save more,
people lose their jobs. Those things result in tax revenues dropping,

(05:25):
those things also result in recessions. So while I'm happy
that the government gets to take less money in taxes
or they did in twenty twenty three, it will almost
certainly result in a twenty twenty four recession to make
up the difference. We see something called the national deficit.
If you spend more than your income, you have to

(05:46):
use debt to cover your expenses, and the exact same
thing is true of the federal government. If they spend
more than they take in taxes, they have to use
debt to cover the difference. The amount that they borrow
every year is called the deficit. Year to date, they
have borrowed thirteen percent more compared to last year during
the same period, which means that going into twenty twenty four,

(06:06):
as tax revenues continue to fall from the continued economic
pain and recession, they're going to have to borrow even
more than that to make up the larger difference, because
you know, the last thing they're going to do is
reduce spending to cover the difference. We've seen a brief
few month period in which interest rates on government debt
have been falling, but that is likely over now as

(06:27):
a result of the increased borrowing is going to start
outpacing the demand for lending to the government. Yet again,
as that deficit widens, as the country hits a recession,
they're going to have to borrow more and more. There's
going to be less money available to lend to them.
That's going to push interest rates higher up some more.
This fits with my longer term thesis I've been talking
about for over a year on this channel. Now we

(06:49):
are in a long term cycle that lasts about forty years.
From about nineteen forty through nineteen eighty was forty years
where interest rates and inflation were both moving higher. Forty years.
From about nineteen eighty until twenty twenty, interest rates and
inflation were both moving lower, but they bottom out when
interest rates hit zero percent in twenty twenty. And we
are in for another at least decade, but probably multi

(07:12):
decade phase of the cycle where both interest rates and
inflation are moving higher yet again, and there absolutely will be,
as there always are periods of time where you have
a reversal from the trend where interest rates go down
for a short period of time, but the longer trend
is higher for longer and if you've recently jumped on
the bandwagon that bonds are by right now, just understand

(07:33):
that you are in one of the most crowded trades
because right now, according to Bianco Research, we are seeing
the most bullish sentiment on bonds since twenty twenty, which
historically was not a great time to be bullish bonds,
as they started dropping rapidly after that. Now, as you
and I both know, when they get to a point
where interest rates are a little bit too high for comfort,

(07:54):
the Federal Reserve will step in and save the day
and start printing to make up for that gap. This
will likely result in a return to quantitative easing, where
their balance sheet starts to increase yet again as they
buy up more government bonds. But even though that will
result in lower interest rates for the government, that will
likely result in higher interest rates for everybody else. This

(08:15):
is because the government spending at that point will be
done through money printing. That will mean more money in
circulation that will have the impact of pushing higher on inflation,
and as inflation moves higher yet again, that means the
only people who are going to be lending below inflation
are the Federal Reserve and people like you and I.
Cannot access lending from the Federal Reserve. People like you

(08:37):
and I have to access lending from people who actually
care about profits, which means they won't be lending at
a real negative rate. They'll be lending at a rate
that's above the inflation rate, and when inflation moves higher,
so to interest rates. For those of us who are
paying attention, this is actually very good news because number one,
recession means there are going to be deals that create
fortunes over the long term, and number two, inflation is

(09:00):
a fantastic way to build wealth over the long term.
If you understand how to use debt, if you need
help putting all those pieces together, I highly encourage you
to join Heresy Financial University and to join hundreds of
other members who are learning how to make massive profits
and protect themselves from losses. Despite all the craziness going
on in markets today, there are a few slots left

(09:20):
of the discount code new Year Knew Me to get
fifty percent off. By the time you watch it, there
are probably just a couple of lefts, So go ahead
and try that code out code new Year Knew Me
to get half off. Thanks so much for watching. Have
a great day,