Tax­pay­ers’ de­lays slow rev­enue to Trea­sury

Many an­tic­i­pate GOP rate cuts

The Washington Times Daily - - POLITICS - BY DAVID SHERFINSKI

Un­cle Sam’s tax rev­enue has taken a sur­pris­ing dip, com­ing in lower than ex­pected — and an­a­lysts say one rea­son could be that tax­pay­ers are look­ing for ways to push their IRS pay­ments into the fu­ture, bank­ing on Repub­li­cans to de­liver tax cuts that would save them money in the long run.

The lower stream of in­come to the U.S. Trea­sury is one rea­son ad­min­is­tra­tion of­fi­cials say the gov­ern­ment will run out of room un­der the fed­eral debt ceil­ing ear­lier than ex­pected.

In its lat­est monthly report, the Con­gres­sional Bud­get Of­fice said the fed­eral gov­ern­ment’s tax in­come is run­ning 3 per­cent be­low pro­jec­tions over the pre­vi­ous eight months, which works out to a short­fall of as much as $70 bil­lion.

The CBO said the chief cause is smaller than ex­pected in­di­vid­ual and cor­po­rate tax re­ceipts.

CBO an­a­lysts said there are two pos­si­ble ex­pla­na­tions: Either in­comes rose less than ex­pected last year or tax­pay­ers are shift­ing in­come record­ing “from 2016 to later years, ex­pect­ing leg­is­la­tion to re­duce tax rates to be en­acted this year.”

Fi­nan­cial an­a­lysts said there is rea­son to sus­pect the sec­ond explanation.

“When­ever there’s that un­cer­tainty there’s more in­de­ci­sion, and such pay­ment de­lays can af­fect the bot­tom line for the gov­ern­ment,” said Blake Chris­tian, a part­ner at the ac­count­ing firm HCVT.

“I think col­lec­tively, it can move the nee­dle enough,” he said. “That’s part of it.”

Mr. Chris­tian said he has cases where it may make sense to de­lay ac­tion, such as de­fer­ring a first pay­ment on a pur­chase un­til the fol­low­ing year, when rates could be lower.

“It def­i­nitely, I think, pays to wait on cer­tain big-ticket items, and cer­tainly in­come,” he said.

An­a­lysts have pointed to an uptick in re­ceipts to­ward the end of 2012 ahead of the “fis­cal cliff” of tax in­creases and spend­ing cuts as ev­i­dence that fed­eral tax pol­icy, or an­tic­i­pated pol­icy, af­fects such be­hav­ior.

But with the prospect of lower rates, the trend has re­versed, said Lucy Da­dayan, a se­nior re­search sci­en­tist at the Rock­e­feller In­sti­tute of Gov­ern­ment.

Early in­di­ca­tions of fur­ther de­clines in in­come tax pay­ments for April are “mostly due to shift in in­come from tax year 2016 to 2017 in the an­tic­i­pa­tion of fed­eral tax rate cuts,” she said.

“Anec­do­tal ev­i­dence from the states [does] in­di­cate that tax­pay­ers take ac­tion when­ever they can take ac­tion to min­i­mize their tax li­a­bil­ity,” she said.

She also pointed out that even as the stock mar­ket showed rel­a­tively strong gains last year, the CBO pro­jected a 10 per­cent de­cline in cap­i­tal gains be­cause wealth­ier peo­ple who are more apt to have sig­nif­i­cant li­a­bil­i­ties in that area push things for­ward.

“They are shift­ing in­come, tax­able in­come on cap­i­tal gains, from 2016 to 2017 be­cause they do an­tic­i­pate [that the] tax rates are go­ing to go down,” she said.

The lower-than-an­tic­i­pated fed­eral re­ceipts are al­ready hav­ing pol­icy im­pli­ca­tions on Capitol Hill. The Trump ad­min­is­tra­tion has urged Congress to raise the debt ceil­ing be­fore law­mak­ers break for Au­gust, though Trea­sury Sec­re­tary Steven T. Mnuchin has said there should be enough room to keep the gov­ern­ment open through Septem­ber.

But the de­cline in rev­enue is also hav­ing a spillover effect on bud­gets in states such as Cal­i­for­nia and New York, which rely heav­ily on cap­i­tal gains taxes, Ms. Da­dayan said.

“Un­for­tu­nately, the states are in a re­ally tough po­si­tion,” she said. “They re­ally can­not be sure what’s go­ing to hap­pen at the fed­eral level.”

Oth­ers ac­knowl­edged that the de­layed tax pay­ments and the small­erthan-ex­pected fed­eral col­lec­tions could be con­nected, but they cau­tioned against draw­ing too many hard con­clu­sions about cause and effect un­til they can sort through more data.

“I think it’s a rea­son­able con­jec­ture,” said Doug Holtz-Eakin, a CBO direc­tor un­der Pres­i­dent Ge­orge W. Bush. “The no­tion that peo­ple would be pay­ing at­ten­tion to the prospect of lower tax rates and not pay­ing in an­tic­i­pa­tion of get­ting lower tax rates makes per­fect sense,” he said. “That’s a well-es­tab­lished phe­nom­e­non.

“This is one where time will tell,” he said.

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