Leave it to Tom McClellan to look at how stocks react to the tax rate (as a percentage of GDP). I find this data absolutely fascinating. The good news is, at least as of right now, if stocks are to fall, it won’t be because tax rates are too high. Take a look at Tom’s most recent study below. For those interested all his studies can be found (free) at www.msoscillator.com.
Treasury Department Is Not Biting Too Hard
The good news for the stock market bulls is that the federal government is not taking too big of a bite out of Americans’ incomes. The latest data from the Treasury Department show that total federal receipts from all sources for the 12 months ending September 2019 amounted to 16% of GDP. That still seems like a pretty high percentage empirically, but it is below the average of the past 4 decades.
This week’s chart compares that measure of the tax bite to the movements of the SP500. The important lesson is that pushing taxes up too high tends to cause recessions and bear markets, eventually leading to a falloff in total tax receipts. Generally speaking, 18% qualifies as “too high” because we have seen a recession every time it has gone up there. Even getting close to 18%, as we saw in 2007 and 2016, can lead to economic distress.
