American households paid “hundreds of billions more than usual” in their 2021 tax returns, according to a Monday analysis from the University of Pennsylvania’s Wharton School.
The analysis from Penn Wharton Budget Model (PWBM), a nonpartisan public policy research initiative, noted that payments of nonwithheld individual income taxes in April 2022 surpassed $522 billion — significantly higher than the $243 billion collected in May 2021, the month in which tax filings were due last year.
Because “the surge in taxes due at filing came entirely from taxpayers who paid by electronic funds transfer,” PWBM concluded that the vast majority of the increased tax payments came from households which, unlike businesses, tend to file their records electronically once per year at tax season.
The payment surge is likely attributable to higher household wealth. “Household equity wealth rose 40 percent last year — nearly twice as fast as any other year since 1990 — as the economy recovered and equity prices rose sharply,” PWBM explained.
Indeed, American Enterprise Institute senior fellow Kyle Pomerleau told The Daily Wire that “the economy in 2021 recovered quite rapidly, which meant that incomes also increased.” Because capital income tends to correspond with the business cycle, “it is not very surprising that as the economy grew, that source of income grew quickly.”
Inflation “can also increase the nominal returns to capital assets and boost the taxes paid on their returns,” Pomerleau added.
Although the data utilized by PWBM were adjusted for inflation according to the Personal Consumption Expenditures Price Index, the Consumer Price Index — which increased from 1.4% in January 2021 to 7.0% by December 2021 — has trended somewhat higher than the former metric over the past year.
Pomerleau also pointed out that Congress discussed potential tax increases on capital income last year — which “may have encouraged taxpayers to realize capital gains in 2021 in order to avoid potential tax increases put into place in 2022.” For example, Treasury Secretary Janet Yellen argued in October that a tax on unrealized capital gains — in other words, investments that have not yet been sold — would help the federal government reap revenue from wealthy taxpayers.
In any case, the stock market has seen a large selloff since the end of 2021 due to various economic calamities — including persistent inflation, high gas prices, low consumer confidence, and the Russian invasion of Ukraine. The Dow Jones has fallen from over $36,000 at the end of 2021 to under $32,000 as of Tuesday afternoon.
Likewise, the Nasdaq — a technology-heavy stock index — has endured seven weeks of losses, including 3.8% declines during the week of May 16. The drops constitute the worst declines since the dot-com selloff in 2001. Companies such as Tesla, Cisco, Dell, and Twitter experienced large drops last week — 14%, 13%, 11%, and 6%, respectively.
At a press conference earlier this week, President Joe Biden denied that the United States is bound for another recession. In addition to emphasizing lower unemployment rates, he argued that his administration is doing what they can with respect to gas prices and other phenomena.
“The price of gas at the pump is something that I told you — you heard me say before — it would be a matter of great discussion at my kitchen table when I was a kid growing up. It’s affecting a lot of families,” Biden explained. “But we have released over two hundred and, I think, fifty-seven thousand — million barrels of oil, I should say. Us and the rest of the world we convinced to get involved. It’s helped, but it’s not been enough.”