Posted on June 17, 2021
I had the great experience of co-authoring a blog post at the Brookings Institution’s Hamilton Project with my former CBO colleague Wendy Edelberg, the Director of the Hamilton Project, and two of her colleagues there, Mitchell Barnes and Sara Estep. We discuss how tax collections and refunds from the recent tax filing season show evidence of strong income gains for higher-income taxpayers in 2020 and only muted decreases in income for lower- and moderate-income households.
Unlike the typical tax filing season in the year after a recession begins, when nonwithheld tax payments fall sharply and refunds rise markedly, this year federal nonwithheld tax payments rose sharply, by over 20 percent, and refunds (excluding most all rebate effects) rose much more modestly than in past recessions. (Those comparisons are to the 2019 filing season because last year’s changes in tax filing deadlines make it impossible to make useful comparisons.) And the pattern is only strengthened because most of the increase in refunds, we estimate, was caused by recent tax law changes, and the increase in nonwithheld receipts would have been even larger if not for the tax law changes. Our conclusion is that the strong increase in nonwithheld receipts largely reflects the stock market increases in 2020 along with a sharp increase in trading volume, which together boosted capital gains realizations that are highly concentrated among higher-income taxpayers; normally in recessions the stock market falls and capital gains realizations decline sharply. And the relatively small increase in tax refunds, after accounting for the effects of law changes, suggests that overall taxable income of lower- and moderate-income taxpayers for the year as a whole held up well when compared to income in previous recessions.
Please check it out!