If it weren't for the student loan repayments beginning again this would be a dandy natural experiment to test how much the budget deficit is goosing the economy and stock market.
Unfortunately it is going to take some effort to tease out the effect and I don't have time to do it.
That said, the effect of drawing the money out of the economy/market probably won't be as large as the headline implies.
From StockCharts, July 21:
Starting on Jan. 8, 2023, much of California experienced flooding and mudslides due to much greater-than-normal rainfall. As a result of those weather events, the IRS announced that an extension would be granted to most Californians (ones who live in affected counties, which was most of them) for not just filing their Form 1040 tax returns, but also for paying any remaining 2022 taxes.
This is a big deal financially for the U.S. Treasury Department, because California is by far the largest taxpaying state. According to Moneyrates.com, Californian taxpayers account for 15% of total tax receipts, in spite of having just under 12% of the U.S. population. There are more millionaires and billionaires in California than in other states. So if some portion of Californians get to delay paying their 2022 taxes, that can amount to a lot of money.
You can see that effect in this week's chart above. The month of April usually is the largest month of the year for federal tax receipts, as taxpayers reach the deadline for paying taxes owed in the prior year. Those payments get added to the normal payroll deductions, which wage earners have taken from their pay every month.
April 2022 saw a big surge in tax payments, in part because the stock market was up so nicely in 2021 and thus there were a lot of capital gains taxes to pay. The Fed's quantitative tightening in 2022 knocked down stock market performance, and so there were not as many capital gains that stock traders had to pay taxes on in April 2023 with their tax returns. But April 2023 also saw Californians who owed taxes for 2022 get to sit on that money and not send it to Uncle Sam. So the April 2023 total of $638 billion that Uncle Sam collected was down 26% from April 2022.
In some recent years, when interest rates were almost nothing, it did not matter much if you paid early or late. But now, when investors can earn more than 5% annual yield on T-Bills, it pays a lot more to refrain from sending your money to the IRS. And Californians who can manage such a delay appear to be doing so.
And it is not just the Californians' annual tax payments. Because most Californians got to delay filing their 2022 taxes, that also means that they get to delay the calculation of what their 2023 quarterly estimated payments are going to have to be....
....MUCH MORE
