May 2025

What do we know about dramatic meltdowns in the US stock market? In our recent memory, we’ve had three. In two of them, 1999-2000 and in 2007-2008, the writing was on the wall well before the fall. In the first, start-up companies with no earnings had colossal stock market valuations. In the second, tiered mortgage-backed securities for homeowners making no down payments were being sold to the general public. The third, in 2020, was in response to the global economy shutting down abruptly in response to the worldwide Covid-19 outbreak.

Post-election optimism around deregulation, tax cuts, and a business-friendly administration has given way to concerns about potential negative economic impacts, especially around how uncertainty may cause consumers and businesses to reduce spending.

The Economic Miracle

The US economy has proven to be surprisingly resilient during its post-COVID recovery. Inflation has come down as employment and real wages have grown, which has enabled the US consumer to maintain high levels of spending. The 2.4% annualized increase in real gross domestic product (GDP) in Q4 2024 (see Figure 1) was primarily driven by increases in consumer spending and government spending that were partly offset by a decrease in investment. Imports, which are a subtraction in the calculation of GDP, decreased.

April is a good time to reflect on our tax system and enforcement. Most Internal Revenue Service enforcement is automated and not done by individual agents. The automation involves matching the 250 million W-2 wages earned forms, the 5.4 billion 1099 miscellaneous income forms, and cash transaction reports filed by banks and other financial institutions to the 165 million individual income tax returns filed yearly. According to the IRS, “it’s not labor intensive.”