Posted on September 20, 2020
Summary
- We estimate that total federal revenues for the fiscal year-to-date, through September 17, are down by about 2 percent compared to last year’s amounts at the same point.
- With only a week and a half to go in the fiscal year, our current point estimate for the full year is that total revenues will be down by 1.5 percent, although there is still a bit of uncertainty. All-in-all, we expect that revenues will be down by 1 or 2 percent. Revenues are expected to bounce up a bit at the very end of the month when annual payments are made for the health insurers’ tax that was enacted in the Affordable Care Act but not in effect last year.
- The main remaining uncertainty is whether the IRS will pay out significant business tax refunds late this month as a result of provisions of the CARES Act, and how much money is still left to be counted in individuals’ quarterly estimated payments of income taxes.
With only a week and a half to go in the federal fiscal year, and with the sizeable September quarterly payment of corporate income taxes now largely in the books, you would think that we’d have a pretty good idea where total federal revenues are going to end up for the year. I calculate that for the fiscal year through September 17, the latest day for which the Treasury Department has released receipts data, total federal revenues (also known as federal receipts) have dropped by about 2 percent compared to the same period of a year ago (see chart below). My extrapolations show receipts ending the fiscal year down by about 1.5 percent (for a total amount of receipts of about $3.41 trillion for the year). There is still uncertainty around that extrapolation, and our likely range is receipts being down by 1 percent or 2 percent. Quarterly estimated tax payments by individuals for the 3rd calendar quarter, which were due to the IRS by September 15, are still being counted; also, we are waiting to see if the IRS gets a spate of business refunds out the door by fiscal year’s end. About a month ago, we had extrapolated total receipts for the full year being down by 2 percent to 3 percent, so receipts have firmed up slightly over the past month relative to our earlier expectations.
Receipts this fiscal year have been a story of two half-year periods. From October through March, total receipts were higher by about 6 percent compared to the same period in fiscal year 2019 (again, see the chart). However, from April, when the pandemic hit in full force, through mid-September, receipts have been down by about 9 percent.
In September, the major sources of receipts have continued to be down. So far this month, corporate tax payments (the gross payments, that is, not net of refunds), mainly representing the mid-month quarterly estimated payment, have fallen by about 9 percent compared to amounts for the same period last September; that is an improvement from the drop of about 20 percent registered from April through July. Receipts from individual and payroll tax withholding are down by about 6 percent so far this month, compared to those at the same point in September last year and adjusted for calendar differences between the two months–although down by about 2 percent on a constant tax law basis that removes the effects of revenue-reducing law changes enacted in March. The withholding decline so far in September represents a continuing slow improvement from the largest declines back in April. Individual quarterly payments of income taxes, still being counted, were down by about 5 percent for this month through last week, but my extrapolation has them down closer to 10 percent by month’s end because the amounts from checks sent by taxpayers to the IRS, the main part still to be counted, have been down by more than that 5 percent. A decline of 10 percent would be very close to how much those receipts, including final payments with tax returns for tax year 2019, dropped from April through July.
I expect a mini-surge at month’s end from payments, totaling about $15 billion, for the excise tax on health insurers that was imposed by the Affordable Care Act. Embroiled in the controversy about the financing sources of the Affordable Care Act, the tax, which is paid once a year at the end of September, has been on-again, off-again in recent years; the payment was off last year, is off again permanently starting next year, but is on for this year alone. That payment, due by September 30, will give a boost to overall receipts relative to last year’s amounts. It’s the main reason that my central extrapolation of receipts for the full fiscal year, down by 1.5 percent, is slightly stronger than the drop of about 2 percent recorded through late last week.
The amount of individual quarterly payments still to be counted this month adds some uncertainty to the final receipt totals for the month, but probably the bigger source of uncertainty is whether business refunds will jump near month’s end. The CARES Act, enacted back in March, contained two retroactive business provisions that could result in very significant refunds at some point, reducing net revenues. We posted a month ago that we were skeptical that significant refunds from those provisions could go out before the end of September. Business refunds this month have been running much higher than those from last September at this point, about 60 percent higher, but the amount last year was so low that 60 percent growth is still only about $1.5 billion; that is not enough to move the needle for annual revenue growth. We’ll have to wait to see if enough business refunds go out in the final days of the fiscal year to have a measurable effect on growth in fiscal year receipts.