According to analysts from Wells Fargo, the prospect of tax cuts in the wake of the Presidential election likely led investors to delay realizing capital gains at the end of 2016, affecting tax revenues.
“Federal tax revenues have sharply decelerated, leading some commentators to draw attention to this potential red flag for the economy. Admittedly, the current pace of federal revenue growth is more in line with recessionary periods than with healthy expansions.”
“We believe that the policy implications of the surprising November election result and subsequent market reaction likely led many investors to push off realizing capital gains. This in turn resulted in lower-than-anticipated tax collections when filing season occurred this past spring.”
“It is possible that this dynamic has also played out in the corporate sector, as companies look to avoid bringing profits home from abroad even more than usual due to the potential for major tax changes on the horizon. Taxes withheld on the wages and salaries of employees, which comprise the bulk of federal revenues, have grown at a reasonably strong 4-5 percent fiscal year to date, which suggests the economic fundamentals are not as bad as they appear from the headline revenue growth.”