Surge in Individual Tax Payments Likely Driven by Capital Gains: Report

·1 min read
Jonathan Ernst

Individuals paid quite a bit more in taxes this year compared to years past, and according to an analysis by the Penn Wharton Budget Model, that surge in taxes owed was probably driven by enormous capital gains recorded by households in 2021.

In the 15 years before 2021, inflation-adjusted individual tax payments in April typically totaled about $300 billion, PWBM says, but in 2021 that number soared above $500 billion. Although complete data from the IRS is not yet available, PWBM notes that most of the payments came to IRS via electronic transfer, which suggests that individual households were the source.

The record surge in individual tax payments parallels the growth of financial wealth and income for households in the rebounding economy of 2021. “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 says. “Recent years have also seen a substantial increase in the volume of trading by households. Rapid asset price appreciation and broadening participation in markets imply an unusually high level of household financial income in 2021, especially capital gains.”

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