Economists are scratching their heads over the news that individual income tax payments are on pace to reach a record level. Individual income tax collections by the Internal Revenue Service are significantly higher than what had been expected.
Individual income tax collections are set to reach a whopping $2.6 trillion, or 10.6 percent of the U.S. economy, in the fiscal year that ends Sept. 30, according to the Congressional Budget Office. That is an increase from 9.1 percent in 2021 and is a record in the 109-year history of the tax, surpassing the war-tax receipts of 1944 and the dot-com boom of 2000, The Wall Street Journal reported.
It was expected that business owners and investors would be paying more in taxes, but CBO officials and economists are at a loss to explain why tax revenues are hitting high as a share of the economy. This increase has “surprised even the nation’s fiscal-policy experts,” The Wall Street Journal reported.
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According to the Penn Wharton Budget Model, collections of non-withheld taxes reached an estimated and inflation-adjusted $522 billion in April 2022. Before the pandemic in 2018 and 2019, it was over $300 billion. The difference is substantial.
CBO officials and other economists who monitor tax collections, explain that one reason for the increase could be that the tax revenue became disconnected from other economic data. But they are unsure as to why.
“There’s a part that is unexplained that we need more time to figure out,” CBO director Phillip Swagel said. “It’s a mystery. It’s a maybe happy mystery, to have strong revenues.”
Another reason for the increase could be that income grew faster than expected for people in the highest tax brackets compared with others. This would mean means more income that would be taxed at higher rates.
In fact, nearly 500 billionaires were born during 2020. The average net worth of the 493 new billionaires was $2 billion, Forbes reported.
But CBO officials are still trying to figure out the income tax surge.
“Maybe this is another data point that suggests that when accommodative monetary policy and fiscal stimulus are really, really aggressive, it has a larger effect than we originally thought,” Kyle Pomerleau, senior fellow at the conservative-leaning American Enterprise Institute, told The Wall Street Journal.
Photo: This July 24, 2018, file photo shows a portion of the 1040 U.S. Individual Income Tax Return form.(AP Photo/Mark Lennihan, File)