Challenges and Uncertainties in Forecasting Federal Individual Income Tax Receipts

Abstract

Forecasting individual income receipts has been greatly complicated by the receipts surges. First, the persistence of the surges has made forecasting the short- and long-term effects of the recent receipts growth especially difficult. Second, collections data are cru- cial to updating the receipts forecast. However, the receipts surges, in combination with tax law changes that altered the timing of tax payments, have changed the relationship between current collections and underlying tax liability. Data from aggregate collections and individual income tax returns confirm this changing relationship.