Posted by: Josh Lehner | April 15, 2022

Tax Season 2022 Starts Strong

Happy Friday everyone. Just a friendly reminder, next Monday is the personal income tax filing deadline for tax year 2021. You still have a couple of days to file on time if you need it!

Our office’s baseline expectation for tax season combines three things. First, the tax filing deadline is back to being near April 15th, unlike the past two years where the deadline was delayed. As such, the flow of funds, so to speak, should be normal as well. Second, underlying income growth will be strong given the inflationary economic boom. Third, actual tax collections will be tempered some because we will be giving out a record kicker due to our office under forecasting revenues in the 2019-2021 biennium. Given the kicker is administered as a credit on the return the impact on state revenues is to collect smaller final payments or disburse larger refunds, both of which lower the total payments owed in April.

As of last week, final payments are off to a strong start this tax season. It is still a bit too early to tell where exactly they will end up. Peak processing season for our friends over at the Department of Revenue is just getting underway (at least in terms of dollar volume of returns). We will know more in a couple weeks.

Overall our office expects revenues to be more like 2020 (also a kicker payout year) than 2019 or 2021. The key will be just how strong is underlying income growth, including some non-wage forms of income like capital gains. Stock markets were up about 25% last year. Capital gains are not included in the BEA estimates of current personal income, in part because a key piece is taxpayer behavior. Households can choose when to realize their gains, which can either buck or amplify trends in the underlying asset market valuations. We will know more soon, and particularly after the extension filers are processed later this fall.

Our next forecast is scheduled for Wednesday, May 18th when we will update our overall outlook including the latest revenue collection information.


Responses

  1. Great, so you’re going to recommend no new taxes for the next Leg session?

    OOC – It’d be interesting to see the process your office goes thru to predict the tax revenues that the state uses (+3%) to set the kicker amount.

    • First, we are a research office and not a policy shop. We will answer questions but generally not give recommendations.

      Second, the kicker threshold is 2%. If revenues come in above our forecast made more than 2 years in advance, the entire amount above the forecast (not the amount above 2%) is returned to taxpayers. This means there is no revenue upside to the state. Given inherent volatility in the economy let alone taxpayer behavior, I think it is safe to say a 2% threshold is small. Only twice in 40 years had our office landed in the “sweet spot” of revenues above forecast but below the 2% threshold. That said, the kicker is state policy and voters enshrined it in the constitutional. We know the confines of the sandbox in which we work.

      Third, to that end the kicker does make use put forth our best guess. We meet quarterly with two sets of economic advisory groups and one set of revenue advisors. The forecast is very much a consensus outlook given the input and discussions.

      • OK, I forgot it was a 2% buffer. I remember when Sizemore/McIntire put that on the ballot, just not the details.

        Still think seeing the process on forecasting revenues would be fascinating. Then again, I lead a quiet life.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: