Inflation Boosting Tax Receipts

May 16, 2022 1 min read
Inflation Boosting Tax Receipts

It’s good to be the King! You can spend lots of money by printing it. If you still have a fiscal deficit, the resulting inflation can help to narrow it by boosting tax receipts. Here in the US:

(1) The federal budget deficit, on a 12-month-moving-average basis, has narrowed significantly from its record high of $4.1 trillion through March 2021 to just $1.2 trillion through April of this year. Outlays, also on a 12-month basis, have dropped 20% since they peaked at a record $7.6 trillion during March 2021 through April of this year.

(2) Federal government receipts (based on 12-month sums) have been soaring to record highs since April 2021, led by an almost vertical ascent in individual income-tax receipts. Total federal tax receipts are up 31.5% y/y through April, led by a 53.8% jump in individual income-tax receipts.

(3) Yes, Virginia, inflation is a tax, and it is showing up in federal tax receipts. Warning to the King: The masses will behead you if inflation is too high for too long.

(4) Since tax receipts are up much more than inflation, is the economy much further from the edge of recession than widely feared? Actually, some of the past 12 months’ tax receipts were boosted when the IRS pushed back the 2021 filing deadline for a second year in a row, both to ease pandemic-related complications for taxpayers and to give them extra time to take advantage of the numerous tax provisions created by the American Rescue Plan.

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