Delaying federal tax return filing and payment deadlines to cope with the coronavirus emergency contributed to a 55 percent decline in individual income and payroll tax collections in April compared with a year ago.
“The Administration’s delay of tax-filing and payment deadlines for final and estimated payments for individuals and corporations until July 15 is expected to delay many receipts that would have been collected in April,” according to the Congressional Budget Office’s monthly budget review, released May 8.
The federal budget usually shows a surplus in April, the best month for tax payments and estimated payments, the CBO report said. But April 2020 recorded a federal deficit of $737 billion compared with a $160 billion surplus in April 2019, the CBO said.
However, the CBO said it “expects much of that deferred revenue to be collected in future months (including some in future fiscal years).”
CARES Effects
The CBO report repeatedly cited provisions of the Coronavirus, Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), and the decision to delay return filings and payments, for sharp declines in tax collections.
Corporate income tax collections fell 92 percent, or $41 billion, year-over-year in April, partly because of return filing deadline extensions, the CBO said.
Non-withheld payments of income and payroll taxes crashed 90 percent, by $282 billion, largely because of the changed filing deadline.
Corporate income tax refunds expected because of the temporary treatment of net operating losses allowed under the CARES Act hadn’t shown up in April, possibly because of the nearly monthlong shutdown of IRS processing centers, the CBO said.
Workers’ paycheck withholding declined 15 percent, or $31 billion, partly as a result of wage declines in April, the CBO said, the same day the Bureau of Labor Statistics announced the unemployment rate hit 14.7 percent in April.
Spending Soars Through IRS
The drop in tax collection was matched by a surge in federal spending, much of it through the tax system.
Economic impact payments delivered by the IRS drove a 24-fold increase, to $221 billion, in April 2020 refundable tax credit outlays compared with April 2019, the CBO said.
The IRS said in a May 8 release that it had made more than $200 billion in relief payments to about 130 million individuals during the payment program’s first four weeks.
Total federal spending was $976 billion in April — more than 2½ times the sum spent in April 2019, the CBO said.
“All of the largest changes in outlays compared with last year stem from recently enacted legislation, most notably the CARES Act,” the report said.
Treasury made $12 billion in loans and grants to support aviation industry payroll during the pandemic in April, the report noted. Treasury also supports an exchange stabilization fund of $10 billion to leverage business lending through the economic downturn, the CBO said.