US tax revenues fall short as refunds rise, raising early debt ceiling default risks
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The United States is experiencing a major tax revenue shortfall as larger-than-expected refunds shrink government income. The decline in revenue could make it run out of money quicker than expected. If the trend persists, Congress may have to raise the debt ceiling soon to avoid a default. A default means the government cannot meet all its financial obligations on time, which could damage the economy and rattle investors. Some experts had forecasted the US would run out of funds around late summer or early fall. However, if tax collections stay weak, the government could face financial trouble as early as May or June. As of Thursday, the US Treasury had $281 billion in cash and $207 billion in special measures to pay its bills, but that money is running dry. The Congressional Budget Office (CBO) has told Congress that if tax collections remain weak this spring, the government could hit its financial ceiling by May rather than later this spring. IRS cuts and political gridlock may compound the problem The IRS is bringing in less money than expected. At this point in the year, just 1.1% fewer tax returns have been submitted than at the same time last year. However, since many taxpayers wait until the April 15 deadline to pay taxes, revenue may still rise. But refunds are a different matter. The IRS has issued 4.6% more refunds than last year, implying that the government is losing more money than it gains. Some experts say budget cuts to the IRS could be part of the problem. Elon Musk’s Department of Government Efficiency (DOGE) has slashed the IRS headcount, leading to fewer tax audits. With diminished oversight, more taxpayers may be inflating deductions or even avoiding taxes altogether. However, according to a summer report from the Yale Budget Lab, IRS job cuts have two unintended effects. While fewer audits might encourage risky tax filings,…
Filed under: News - @ March 31, 2025 1:27 pm