This project is developing a new dataset for use by income and payroll tax microsimulation models. The project is progressing in several phases. At the end of each phase the current dataset is used as input to a tax microsimulation model to generate several basic tax estimates for various calendar years. These estimates are then compared with corresponding estimates generated by federal agencies using their more comprehensive data. Examining the differences between the estimates generated from this project's data and the estimates published by the federal agencies should provide ideas about how to improve the development of this project's dataset in subsequent phases.
For more on the source of the federal agency estimates and on how the model-plus-dataset estimates are generated, see the examination methods document. The model used to generate the following Phase 1 estimates is Tax-Calculator 3.5.0 version.
CY2023 Payroll Tax Liability ($ billion)
(federal employee plus employer share)
| Amount | Source |
|---|---|
| 1580.0 | CBO |
| 1696.7 | Tax-Calculator + phase 1 dataset |
| 1482.1 | Tax-Calculator + taxdata dataset |
CY2023 Individual Income Tax Liability ($ billion)
(federal individual income tax)
| Amount | Source |
|---|---|
| 2512.3 | CBO |
| 2012.9 | Tax-Calculator + phase 1 dataset |
| 2154.4 | Tax-Calculator + taxdata dataset |
CY2023 CTC Tax Expenditure ($ billion)
(from the federal child tax credit)
| Amount | Source |
|---|---|
| 122.1 | JCT |
| 108.6 | TSY |
| 113.9 | Tax-Calculator + phase 1 dataset |
| 126.6 | Tax-Calculator + taxdata dataset |
CY2023 EITC Tax Expenditure ($ billion)
(from the federal earned income credit)
| Amount | Source |
|---|---|
| 71.9 | JCT |
| 63.6 | TSY |
| 64.0 | Tax-Calculator + phase 1 dataset |
| 75.0 | Tax-Calculator + taxdata dataset |
CY2023 SSBEN Tax Expenditure ($ billion)
(from excluding some social security benefits from federal AGI)
| Amount | Source |
|---|---|
| 45.9 | JCT |
| 31.4 | TSY |
| 46.9 | Tax-Calculator + phase 1 dataset |
| 58.4 | Tax-Calculator + taxdata dataset |
CY2023 NIIT Tax Expenditure ($ billion)
(from the 3.8% federal surtax on investment income)
| Amount | Source |
|---|---|
| -56.5 | JCT |
| ---- | TSY |
| -69.2 | Tax-Calculator + phase 1 dataset |
| -56.6 | Tax-Calculator + taxdata dataset |
CY2023 CGQD Tax Expenditure ($ billion)
(from taxing long-term capital gains and qualified dividends at lower federal rates)
| Amount | Source |
|---|---|
| 259.3 | JCT |
| 153.9 | TSY |
| 292.7 | Tax-Calculator + phase 1 dataset |
| 224.5 | Tax-Calculator + taxdata dataset |
CY2023 QBID Tax Expenditure ($ billion)
(from the 20% federal qualified business income deduction)
| Amount | Source |
|---|---|
| 56.2 | JCT |
| 50.4 | TSY |
| 16.6 | Tax-Calculator + phase 1 dataset |
| 18.2 | Tax-Calculator + taxdata dataset |
CY2023 SALT Tax Expenditure ($ billion)
(from itemized deduction of state and local income/sales/property taxes)
| Amount | Source |
|---|---|
| 21.2 | JCT |
| 26.5 | TSY |
| 0.4 | Tax-Calculator + phase 1 dataset |
| 29.0 | Tax-Calculator + taxdata dataset |
The phase 1 dataset, which is a flat-file version of the Policyengine-US (0.680.0) 2023 PUF-enhanced CPS input dataset, does a pretty good job of getting close to federal agency estimates in most cases.
The fact that it overestimates (relative to CBO) payroll tax liability by about 7% yet underestimates income tax liability (relative to CBO) by about 20%, suggests the possibility that high earnings may be underrepresented in the phase 1 dataset and/or unearned income may be underrepresented in the phase 1 dataset. There are plans in future phases to do more detailed calculations that should illuminate the reasons for these discrepancies.
The phase 1 dataset estimates for the CTC, EITC, and SSBEN tax expenditures are reasonably close to the JCT and TSY tax expenditure estimates. The fact that the NIIT and CGQD tax expenditure estimates are noticeably above the JCT estimates (NIIT by about 22% and CGQD by almost 13%) suggests that investment income, especially among high-AGI tax units, is overrepresented. This is interesting because it casts doubt on the suggestion made in the previous paragraph that unearned income might be underrepresented in the phase 1 dataset.
The phase 1 dataset estimate for the QBID tax expenditure is significantly lower than either federal agency estimate: about 70% lower than JCT and about 67% lower than TSY. The model has been extensively tested with a variety of hypothetical tax units with qualified business income, so there is confidence that the model represents the QBID tax rules correctly. However, there is a shortage of publicly-available information about the attributes of the businesses generating the qualified business income, and it is exactly that kind of business information that is required to estimate accurately the QBID tax expenditure.
The phase 1 dataset estimate for the SALT tax expenditure is significant lower than the federal agency estimates primarily because Policyengine-US input data does not include variables for state and local taxes. That is by design because Policyengine-US calculates state income taxes. The phase 1 dataset could have included estimated state income tax amounts from Policyengine-US, but the short duration of phase 1 precluded that.