WHAT YOU NEED TO KNOW: Tax Liens are Counter Cyclical to the Economy

Over the last few months I performed an in-depth analysis of IRS data on federal tax lien filings from 1990 through 2013.  This data mining exercise yielded some very interesting results and revealed some of the drivers behind the volume of federal tax lien filings.  The analysis was so helpful to my company that I decided to share it and so part 2 of my blog series “What You Need to Know” continues.


TimeSeriesThe volume of federal tax lien filings is generally counter cyclical to the economy.  When the economy is doing well, lien filing volumes decrease.  The time series shows us that the number of liens filed declined significantly from 1990-2000 and this trend started to repeat itself again with a steady decrease beginning in 2010.  Both of these time periods fall during economic growth and bull markets.  However, bull market alone wasn’t a strong enough of a correlation since it did not apply in the mid 2000’s. I searched on for other relationships.









CorrelationIt turns out that unemployment rate is one factor associated with economic growth that is also highly correlated with the number of tax liens filed.  On the right is a chart depicting the relationship between federal tax liens and unemployment rate.  The lower the unemployment rate the fewer tax liens filed and the higher the unemployment rate the more tax liens filed.









Bar GraphLooking at the data another way, the chart to the left shows average unemployment rates from 2010-2013 and the total federal liens filed from 2010-2013 by month.

Notice the decrease in both? Changes in unemployment rate tend to be correlated more strongly than market trends, so watch unemployment as a tool to help you anticipate fluctuations in lien volume.  There were over 100,000 fewer tax liens filed in 2013 than in 2010.  This current growth cycle is forecasted by some to last another 3 to 5 years.  In this environment, lien volumes will probably continue to decrease.  Fresh leads and good analytics are vital if your company depends on tax lien filings for success.

  1. Anonymous Coward Reply

    Good post, some consideration of which variable led and which variable lagged would have been helpful. Also, to what extent might there be a third economic variable that predicts both? See Calculated Risk for further economic chart goodness.

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