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    Increase in Federal Tax Revenue Drives Record Budget Surplus

    The Treasury Department has reported a surprise federal budget surplus of $308 billion for April 2022. Compared with April 2021’s deficit of $226 billion, net monthly revenues have grown by $534 billion over the same period last year. The surplus comes not only from record tax collections but also from a reduction in federal spending as pandemic programs expire. April 2022 outlays are down $109 billion from April 2021, when stimulus payments, unemployment compensation and SBA pandemic relief programs were at their peak.

    Here is a breakdown of the three largest sources of tax revenue in April 2022:

    Source Taxes Collected
    Individual Income Taxes $593 billion
    Corporate Income Taxes $89 billion
    Social Security Taxes $150 billion

    The Congressional Budget Office (CBO) explains in its Monthly Budget Review that federal receipts collected through April 2022 were “significantly greater” than it estimated when it last published baseline projections in July 2021. This increase is a result of “larger-than-anticipated” payments of individual income taxes, payroll taxes and corporate income taxes for calendar year 2021.

    The growth in individual tax revenues came from nonwithheld taxes, such as capital gains, and from payroll taxes, according to the CBO. Part of the increase is due to the difference in tax filing deadlines in 2021. Final payments for 2020 were not due until May, while final payments for 2021 and estimated payments for 2022 were due on April 18, 2022. Also, withholding taxes were greater, especially among high-income workers, CBO noted. Finally, employers were allowed to defer 2020 payroll taxes until the end the 2021, which resulted in high end-of-the-year collections.

    Implications

    Despite the pandemic, inflation and other economic problems, the US economy appears to be performing well. The CBO Budget Review concludes that the revenue increases “…may reflect stronger-than-expected income growth throughout 2021 and so far in 2022.” Moody’s Analytics attributes the revenue increase to “strong income growth and capital gains.” The Bipartisan Policy Center observed that withholding taxes on workers rose 20%, “indicating that strong economic performance and higher total wages and salaries fueled a portion of FY2022’s revenue increase.”

    Some comments were less favorable. The Tax Foundation explained that a huge growth in corporate profits are only part of the story. High inflation is also contributing to the increase in federal receipts. Finally, Maya MacGuineas, President of the Committee for a Responsible Federal Budget, stated that the large federal surplus in April will do little to reduce the $24 trillion national debt.

    One positive note for the business community is that increased tax collections weaken the argument that corporate tax rates should be increased. The Republican members of the House Ways and Means Committee released a statement noting that corporate tax revenues have increased since passage of the 2017 TCJA, not decreased, and, therefore, no corporate tax increase is warranted.

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