CBO sees a surge in individual income tax revenues over next decade

Tax season might be getting worse for many as individual income tax revenue raises. Payroll and corporate income taxes will likely stay the same.

|
Manuel Balce Ceneta/AP/File
This photo taken March 2, 2013, shows the Internal Revenue Service building at the Federal Triangle complex in Washington.

In its semi-annual fiscal update released this week, the Congressional Budget Office projects that federal revenues will remain flat over the next decade, while spending—mostly for health care and Social Security—will rise. The result: Budget deficits, which have been declining in recent years as the economy has grown, will once again start to rise.

But take a closer look inside CBO’s overall revenue estimates. While it expects payroll taxes to fall steadily as a share of the economy and corporate income taxes to end the next 10 years roughly where they are today, CBO figures individual income taxes will rise substantially between 2015 and 2025.

The CBO projection assumes that dozens of special interest tax breaks that expired last December will not be resurrected. If they are restored and made permanent, projected revenues would fall by nearly $1 trillion over the next decade.

The expected rise in individual income taxes is largely due to a phenomenon known as real bracket creep. Income tax rates are mostly indexed for inflation so nominal increases in income don’t boost effective rates. But when incomes rise faster than the rate of inflation, as CBO projects in a growing economy, that income is pushed into higher tax brackets. As a result, CBO figures individual income taxes will rise by 0.6 percent of Gross Domestic Product by 2025.

Much of the income growth will go to high-income households, driving a larger share of income into the highest tax brackets. Finally, as Baby Boomers age, more will pay tax on their withdrawals from tax-deferred retirement accounts such as IRAs and 401(k)s.

Payroll tax revenue will decline slightly over the next decade for a couple of reasons. One driver is the continued slowing of new deposits to state unemployment trust funds (which CBO treats as federal revenue). The other is faster earnings growth of high-income people, which will throw a greater share of wages over the current cap on Social Security taxes.

Corporate income tax revenue will rise over the next couple of years (assuming the tax extenders are not revived) but only from 1.9 percent of GDP to 2.4 percent. The main reason: The expiration of a law that allowed firms to more rapidly write off the cost of business equipment. But that effect will largely disappear after 2016. After that, CBO expects corporate receipts to steadily fall to 1.8 percent of GDP, slightly below today’s level.

While the top line of CBO’s revenue forecast for the next 10 years is flat, the numbers inside that projection tell a much more interesting story. 

The post CBO Sees a Big Increase in Individual Income Tax Revenues Over the Next Decade appeared first on TaxVox.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to CBO sees a surge in individual income tax revenues over next decade
Read this article in
https://www.csmonitor.com/Business/Tax-VOX/2015/0828/CBO-sees-a-surge-in-individual-income-tax-revenues-over-next-decade
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe