With tax season upon us, the Federal government’s ability to tax comes into full force. The dynamics of tax revenue is a combination of economic prosperity, tax rates, and the existing population of taxpayers. Ongoing discussions surrounding tax rates have been a focus of how to increase tax revenue. However, the other two components include economic conditions and the number of individuals paying income taxes.
As new hires enter the workforce, either out of school or as immigrants, additional tax revenue is derived from their incomes. As economic conditions improve, companies may hire additional employees and eventually start to issue pay raises.
For the past 40 years federal tax receipts have increased an average of 6.76% each year, including year-over-year decreases in 1983, 2001, 2002, 2003, and 2009.