Federal individual income tax receipts for the 2022 tax year are expected to be the highest on record when compared to GDP, according to the Congressional Budget Office, Congress’s official bookkeeper.
“CBO expects individual income tax receipts to rise by 28 percent in 2022, to $2.6 trillion. At 10.6 percent of GDP, that total is expected to be the highest amount of individual income tax receipts recorded since 1913,” the organization stated in its annual report “Budget and Economic Outlook: 2022 thru 2023.”
In 2021, receipts from individual income taxes totaled $2.0 trillion, or 9.1 percent of GDP, the CBO reports. The year 2021 was also considered a banner year for revenue generation by the federal government.
The CBO attributes the revenue increase to a booming economic recovery from the pandemic and tax collections – but states it can’t explain why collections were better than in previous years.
“Total projected revenues rise sharply in 2022 because of the economic recovery, the end of temporary provisions enacted in response to the pandemic, and the strength in tax collections so far this year (which cannot yet be fully explained),” the CBO states.
Moving forward, individual income tax receipts are expected to be slightly lower after 2022, but then surge in 2026 after the 2017 tax reform law expires for individual income taxes. If lawmakers do not extend or modify the tax reform bill that was signed into law in December of 2017, individual income tax receipts are projected to be over $3.5 trillion in 2032.
However, certain lawmakers have said that they will seek to extend several provisions in the tax reform bill, which would include an extension of current tax rates as well as continuing the cap on the State and Local Tax Deduction.
Efforts to extend these tax provisions are likely to occur in 2025, just before the expiration of the individual provisions. If lawmakers are successful in extending provisions in the 2017 tax reform bill, the revenue boon predicted by the CBO will not come to fruition.
Individual income tax collections have long been the largest source of revenue for the federal government. Corporate tax receipts are much smaller.
From the CBO:
Individual income taxes are the largest source of federal revenues (see Figure 4-2). Over the past 50 years, they have contributed an average of 46 percent of annual revenues (equal to 8.0 percent of GDP). Payroll taxes— mainly for Social Security and Medicare Part A (the Hospital Insurance program)—are the second-largest source of revenues, contributing an average of 34 percent of annual revenues (equal to 6.0 percent of GDP) over that period. Corporate income taxes have provided 10 percent of revenues (1.8 percent of GDP), on average, and all other sources combined have provided about 9 percent of revenues (1.6 percent of GDP).
The CBO also states that tax expenditures put downward pressure on revenue collections.
“Tax expenditures have a major impact on the federal budget. For example, the more than 200 tax expenditures in the income tax system will total 8.3 percent of GDP in 2022, CBO estimates (including their effects on individual income, payroll, and corporate income taxes). That amount equals 42 percent of all federal revenues expected to be collected in 2022,” the CBO states.
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