Will an 'April Surprise' Bail Out Washington?
The federal government is expecting to collect around $2.7 trillion in tax receipts this fiscal year.
That would be an all-time record, outpacing the 2007 pre-crisis peak of $2.5 trillion. But some economists are predicting an "April surprise," with much higher than expected revenues pouring into federal coffers because of outsized gains by the wealthy in 2012.
If those predictions come true, the revenues from the rich could help ease the budget pressures in Washington, while also ramping up the debate over additional taxes on the wealthy.
The Congressional Budget Office is expecting tax receipts of $2.708 trillion in 2013. President Obama is expecting around $2.712 trillion.
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But many wealthy taxpayers shifted income they'd normally haven taken in 2013 into the fourth quarter of 2012 to avoid anticipated tax hikes in the new year, which in fact came to pass thanks to the "fiscal cliff" deal: The top income tax rate went to 39.6 percent from 35 percent on income over $400,000. Taxes on capital gains went to 20 percent from 15 percent, and investment income is also subject to new health-care levies.
Some wealthy taxpayers sold stock, homes and businesses in 2012 to avoid the tax hikes. Companies also accelerated income and dividends to move income in 2012.
While the CBO and Treasury department have built some amount of income shifting into their projections, tax experts say the true numbers may be much higher. State and federal governments have proven to be poor forecasters of tax revenues from the wealthy in recent years, since the rich can manage their gains and in general have more volatile incomes tied to the stock market.
"There is certainly a likelihood that there will be more money brought in (this year) than they expected," said Roberton Williams, the Sol Price Fellow at the Tax Policy Center, the non-partisan tax research group. "There could well be an April surprise. And it could be a big one."
If so, an April surprise could ease the budget pressures in Washington. If revenues come in higher than expected, many Democrats may push for a reduction in budget cuts. Republicans would counter that the huge windfall is proof that the wealthy are already paying their fair share in taxes and should not be hit with further hikes in 2013.
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The top one percent of earners in America, who earn 17.5 percent of the nation's income, are expected to pay 43 percent of all federal income taxes this year.
Williams and others say any April surprise would have to be "huge" to change the basic mismatch between spending and revenue in Washington.
He said the April surprise would have to be a half trillion dollars or more to change the debate.
"If they took in $3.2 trillion instead of $2.7 trillion, that would move the needle," he said. "But that seems unlikely."