Posted on February 24, 2023
We have begun a daily tracking of total federal revenues for fiscal year 2023, comparing the amounts of revenue for the fiscal-year-to-date to amounts through the same period last year. Through Wednesday, February 21, we estimate that total federal revenues for the fiscal year (which started on October 1, 2022) are down by 2.9 percent compared to those in the same period a year ago (see chart below). That is about the same drop as was recorded for fiscal year receipts through the end of January of this year. We’ll update and post the chart daily (or as close to daily as possible) on the homepage of the taxtracking.com website, and thus track receipts through the important tax filing season and until the end of the fiscal year. As we discuss below, revenues this fiscal year have a critical role in determining when an exhaustion occurs of the extraordinary measures currently being undertaken by the Treasury Department to avoid the federal debt limit from being reached–assuming no action is undertaken to raise or suspend the limit.
We expect tax payments with tax return filings this tax season to decline significantly, with most of that effect hitting in April when most taxpayers who owe amounts for tax year 2022 will file their returns and pay the amounts to the Treasury Department. We expect that drop to occur in part because of the substantial stock market decline in calendar year 2022, which we expect caused significant declines in taxable capital gains realizations that year; capital gains realizations were also unsustainably high in 2021, thus likely causing a decline in 2022 amounts even if the stock market hadn’t declined. Capital gains realizations largely accrue to higher-income taxpayers who make the large bulk of tax payments with tax return filings.
Refunds this filing season, however, should also be down, as result of tax law changes such as a lower child credit in tax year 2022; the effects of those law changes are more concentrated in lower-income taxpayers who tend to receive tax refunds when they file their taxes. Lower refunds would raise revenue collections (which are net of refunds). However, a good chunk of the lower refunds should affect federal outlays, not revenues, because the child tax credit is refundable, that is, available to taxpayers who have no income tax liability against which to use the credit; credit amounts claimed in excess of tax liability are recorded as outlays in the federal budget. Thus, the lower refunds should have a much reduced effect on the federal revenues that we track.
Last week CBO released its projection of federal tax revenue for fiscal year 2023 (and for the subsequent 10 years). The agency projected that total revenues would drop by about 2 percent this year if no new tax laws (or other laws affecting revenues) are enacted. The Administration is expected to provide their projections next month as a part of the President’s budget. While we expect receipts to drop in the tax filing season, probably pushing total revenues by April lower than the 3 percent decline we are currently observing, we expect revenues for the year to start recovering after that when positive growth in income and payroll tax withholding and corporate income tax receipts moderate the decline in total revenues. But withholding and corporate tax receipts are very responsive to the overall economy, so there will still be much uncertainty on fiscal year 2023 revenues even after the tax filing season.
Revenue growth this fiscal year will have a critical effect on when the federal government will run out of the extraordinary measures that are keeping the debt ceiling from being hit, assuming no legislative or other action is undertaken to raise or suspend the debt limit. CBO’s latest projection is that the extraordinary measures will be exhausted sometime between July and September, again assuming no action is undertaken on the debt limit and no new legislation affecting the budget is enacted into law. By late April and early May, after the tax filing season, we may be able to tell if a decline in total federal revenues in the vicinity of 2 percent for the full year, as CBO has projected, is likely or not. For example, if revenues are coming in too light through April to make that decline of 2 percent likely to be achieved, then we might infer that the exhaustion of the extraordinary measures would hit on the earlier side of CBO’s range, perhaps even before July–though that also depends on how much federal spending occurs between now and then compared to projections.
