Tax revenue boom fuels steep budget deficit decline
Preliminary estimate shows $864 billion in April tax receipts
Surging federal tax revenue in April led to the largest monthly budget surplus on record and a dramatically lower deficit through the first seven months of the fiscal year, according to Congressional Budget Office estimates released Monday.
April tax receipts totaled $864 billion, driving a $308 billion surplus last month. Both figures would be the largest since the Treasury Department began keeping records.
Treasury will publish its official monthly statement on Wednesday, but the CBO's preliminary estimates usually don't diverge by much.
Through the first seven months of fiscal 2022, total revenue hit $3 trillion, a whopping $843 billion or 39 percent more than during the same period a year earlier. At the same time spending dropped by around $730 billion, or 18 percent, as pandemic-era relief programs waned. The result is a deficit of just $360 billion for the fiscal year-to-date, down from over $1.9 trillion at this time in fiscal 2021.
Analysts at the nonpartisan CBO note that the "trajectory of monthly deficits" so far this fiscal year is similar to in fiscal 2019, the last full pre-pandemic budget year. Through the first seven months of that year, deficits totaled $530 billion, en route to a total of $984 billion for the full fiscal year.
Those figures suggest a less-than-$1 trillion deficit for the current fiscal year, dramatically undershooting prior forecasts by the CBO and White House budget office. Wrightson ICAP, an investment advisory firm that closely follows federal government financing, now estimates the deficit for fiscal 2022 could drop to somewhere in the $600 billion to $700 billion range, or the lowest in five years.
While a substantial reduction in government outlays was expected given the end of various stimulus provisions, the revenue bonanza has taken analysts by surprise. The CBO now estimates federal revenue could come in "$400 billion to $500 billion" higher than the $4.4 trillion the agency forecast last July.
"That increase stems mainly from larger-than-anticipated payments of individual income taxes, payroll taxes, and corporate income taxes for calendar year 2021," the CBO said in its monthly budget update. The reasons thus far are unclear, the agency wrote, but "may reflect stronger-than-expected income growth throughout 2021 and so far in 2022."
For context, the first time the federal government topped $4 trillion in revenue was last year. If the White House's forecast for economic growth holds up this year, the CBO's prediction of $4.8 trillion or more would mean tax revenue hitting around 20 percent of gross domestic product. That's only happened twice since 1930 — once during the World War II mobilization effort and once in fiscal 2000, at the height of the tech-fueled stock market bubble.
The recent strength in tax receipts came in large part from substantial growth in nonwithheld income and payroll taxes. As the CBO points out, the comparisons are a bit skewed since the 2021 tax filing deadline for individuals was pushed back to May. But total tax receipts for April and May of 2021 were just $39 billion higher than in April 2022 alone. For comparison, in the last "normal" tax season, in 2019, May tax revenue totaled $232 billion.
Critics point out the revenue blowout won't last, in part because the prices of assets that enjoyed big gains last year are sinking like stones so far in 2022, which will drag down the amount of capital gains tax revenue next year. The S&P 500 stock index is down around 17 percent so far this year; bitcoin, the leading cryptocurrency by market value, was down by nearly 35 percent in 2022 at one point late Monday afternoon.
And compared with the size of the federal debt, even a record monthly surplus won't help much, budget hawks argue.
"Last month’s surplus was that rare piece of good news you almost never get when it comes to the federal budget. But sadly, a $308 billion surplus will barely make a dent in our $24 trillion national debt," Committee for a Responsible Federal Budget President Maya MacGuineas said in a statement. "And it won’t prevent us from running massive annual deficits as far as the eye can see."
Paul M. Krawzak contributed to this report.