Posted on June 1, 2021
Income and payroll tax amounts withheld from workers’ paychecks and remitted to the Treasury Department continued to be strong in May, growing by an estimated 14.7 percent over the amount in May from two years ago in 2019 (see chart). We adjust withholding to standardize the amounts for the number and makeup of business days across months, and to remove the estimated effects of tax law changes that affect withholding but not wages and salaries. The two-year growth in May jumped up from the amounts recorded in the prior two months: 11.8 percent in April and 12.8 percent in March. We believe that at least part of the jump in May reflects the late Memorial Day holiday this year compared to 2019, rather than representing real strength in the economy. Nonetheless, growth in recent months relative to two years ago has continued to be comparable or higher than amounts recorded pre-pandemic, providing a bullish signal on wages and salaries in the economy; however, part of the strong growth probably reflects the uneven nature of the recession and recovery, in which higher-income individuals, who face higher tax rates, have fared better than others.
