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Last week, “Marketplace” reported on taxpayers receiving smaller refund checks this year. Well, the federal government didn’t get what it was hoping for out of this tax season either.
So far this fiscal year, the IRS has brought in $2.7 trillion in tax receipts, according to the Congressional Budget Office. That’s about $250 billion short of what it predicted just a few months ago.
And that shortfall is part of what makes this week’s debt limit talks so urgent. Economists were expecting a drop in tax revenue after last year’s boom — but not a 26% drop.
So, why were the forecasts so far off?
“Full disclosure, we don’t really know,” confessed Caroline Bruckner, a tax expert at American University. She said the Congressional Budget Office is probably waiting for more data before it names a culprit. But if she had to guess, “It could be that there were fewer capital gains transactions.”
Early in the pandemic, sales of homes, stock shares and other taxable assets were soaring, and so were capital gains receipts.
“In the first seven months of fiscal year 2023, people weren’t buying as much stuff,” Bruckner said.
Plus, the IRS gave a lot of American taxpayers an extension this year, including almost everyone in the most populous state, according to Bernard Yaros with Moody’s.
“This is basically because most Californians reside in federally declared disaster areas due to recent flooding, mudslides and winter storms,” he said.
Turns out there’s a climate angle to everything.
Shrinking revenue is especially problematic right now, said Alex Arnon with the Penn Wharton Budget Model.
“We are relying on what comes in every day to finance what has to go out every day,” he said.
Initially, lawmakers thought they had until late summer to work out a deal before the government ran out of cash. Thanks in part to this surprise revenue shortfall, the debt ceiling crunch is here now.
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