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Background to this upcoming event (October):So an unknown number of Californian tax filers are going to have a big tax bill coming due on Oct. 16, 2023, as they have to file their 2022 returns plus put together what would have been all of their quarterly estimated payments that they have not had to make thus far during 2023. That is going to be one giant windfall in October 2023 for the Treasury Department.
But here is why this event matters to the rest of us. Those California late payers are going to have to raise the money to make sure that their big October 2023 checks to the IRS clear. That is going to mean selling some stock, cashing out of money market funds, shifting money from savings to checking, and otherwise generally sending waves through the banking system to get their money organized so that they can cover those deferred payments. Writing a check to the IRS means that a bank then has to cover that check, and move money all around the system as the IRS cashes those checks.
The entire financial system has grown accustomed to that type of turbulence taking place in April every year. But this anomalous Oct. 16 for rich taxpayers in the most populous state is a non-standard type of ripple in the liquidity stream.
There is no way to quantify how much of an effect this will have, as we cannot see into the hearts and the bank accounts of all of those delayed filers in California. But it is going to have some meaningful effect that is an irregular feature of the normal calendar for banking and liquidity. By late October, all of the dust should have settled, and all of that moving around of money to cover tax payments will have simmered down, so stocks can get back to their normal seasonal strength starting by late October.