Tax collections in the current fiscal year are running at a record high so far — about 43% higher than during the same period in 2019, the last full year before the onset of the Covid-19 pandemic — and the Congressional Budget Office now estimates that the IRS will record a $308 billion surplus in the month of April.
The surge in tax revenues is shrinking the federal budget deficit, producing a shortfall of $360 billion in the first seven months of the fiscal year, far smaller than the $1.9 trillion deficit recorded in 2021, the CBO said in its latest monthly budget review. Compared to the previous year, estimated revenues are $843 billion (or 39%) higher while estimated outlays are $729 billion (or 18%) lower.
“April surpluses are the norm – but these are pretty large,” wrote Marc Goldwein of the Committee for a Responsible Federal Budget, referring to the typical rise in tax revenues around April 15.
The CBO said its estimate for April revenues of $864 billion is nearly twice the revenue recorded in the same month last year. While some timing issues were at play and the year-over-year comparison is exaggerated somewhat due to the delay of tax day last year, the increase was also driven by significantly higher individual and corporate tax payments, which soared along with the strong economic recovery. And as Bloomberg’s Laura Davison reports, stock trading by individuals produced capital gains tax payments at three times the level recorded in 2019.
“A big chunk of it has come from short-term capital gains,” Lou Crandall, chief economist at the research firm Wrightson ICAP, told Bloomberg. “Meme stocks were very, very good to the IRS.”
Will it last? Experts aren’t sure whether the surge in revenues is a one-time event or reflective of a deeper, structural shift, though recent losses in the stock market are a reminder that trading profits can be fleeting. In any case, the smaller budget deficit has led the U.S. Treasury to cut back its debt issuance plans, at least in the short run.
“Wouldn't be surprised if we ended up with less than a $1 trillion deficit for the year,” CRFB’s Goldwein said, while also noting that the level is “still massive,” even if below the trillion-dollar mark.
In the longer run, inflationary pressures may cause the deficit to increase once again, as benefit payments in Social Security and health care programs rise and higher interest rates increase the cost of payments on the national debt.
Still, the surge in revenues could help Democrats as they lobby for their spending plans on Capitol Hill. On the other hand, inflation could drive the cost of the bills higher, negating the surge in tax revenues.
“We’re going to have some political maneuvering around the scoring of this bill,” Bill Hoagland of the Bipartisan Policy Center told Bloomberg.