Trump / Harris tax exempt tip income reform and overtime tax reform (#…

…5245)

* Trump tax exempt tip income reform
Fixes #5244

* test fix

* adjust logic to just reduce the var

* adjust AGI as opposed to taxable income

* gross income*

* test name

* consolidate overtime and tip income into one reform structure

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: minor
+  changes:
+    added:
+    - Trump tip income tax exempt.

policyengine_us/parameters/gov/contrib/tax_exempt/in_effect.yaml

@@ -0,0 +1,8 @@
+description: Various income sources are exempt from federal income or payroll tax, if this is true.
+metadata:
+  unit: bool
+  period: year
+  label: Tax exemptions in effect
+
+values:
+  0000-01-01: false

policyengine_us/parameters/gov/contrib/tax_exempt/overtime/income_tax_exempt.yaml

@@ -0,0 +1,8 @@
+description: The propsal to exempt overtime income from income tax applies, if this is true.
+metadata:
+  unit: bool
+  period: year
+  label: Overtime income, income tax exempt
+
+values:
+  0000-01-01: false

policyengine_us/parameters/gov/contrib/tax_exempt/overtime/payroll_tax_exempt.yaml

@@ -0,0 +1,8 @@
+description: The propsal to exempt overtime income from payroll tax applies, if this is true.
+metadata:
+  unit: bool
+  period: year
+  label: Overtime income payroll tax exempt 
+
+values:
+  0000-01-01: false

policyengine_us/parameters/gov/contrib/tax_exempt/tip_income/income_tax_exempt.yaml

@@ -0,0 +1,9 @@
+
+description: The propsal to exempt tip income from payroll tax applies, if this is true.
+metadata:
+  unit: bool
+  period: year
+  label: Tip income, income tax exempt
+
+values:
+  0000-01-01: false

policyengine_us/parameters/gov/contrib/tax_exempt/tip_income/payroll_tax_exempt.yaml

@@ -0,0 +1,8 @@
+description: The propsal to exempt tip income from payroll tax applies, if this is true.
+metadata:
+  unit: bool
+  period: year
+  label: Tip income payroll tax exempt 
+
+values:
+  0000-01-01: false

policyengine_us/parameters/gov/irs/gross_income/sources.yaml

@@ -23,6 +23,7 @@ values:
     - miscellaneous_income
     # Listed separately on 1040 line 8g.
     - ak_permanent_fund_dividend
+
 metadata:
   unit: list
   period: year

policyengine_us/reforms/reforms.py

@@ -53,6 +53,10 @@
 from .harris.capital_gains import (
     create_harris_capital_gains_reform,
 )
+from .tax_exempt.tax_exempt_reform import (
+    create_tax_exempt_reform,
+)
+
 
 from policyengine_core.reforms import Reform
 import warnings
@@ -126,6 +130,7 @@ def create_structural_reforms_from_parameters(parameters, period):
     harris_capital_gains = create_harris_capital_gains_reform(
         parameters, period
     )
+    tip_income_tax_exempt = create_tax_exempt_reform(parameters, period)
 
     reforms = [
         afa_reform,
@@ -153,6 +158,7 @@ def create_structural_reforms_from_parameters(parameters, period):
         family_security_act_2024_eitc,
         repeal_dependent_exemptions,
         harris_capital_gains,
+        tip_income_tax_exempt,
     ]
     reforms = tuple(filter(lambda x: x is not None, reforms))
 

policyengine_us/reforms/tax_exempt/__init__.py

@@ -0,0 +1,3 @@
+from .tax_exempt_reform import (
+    create_tax_exempt_reform,
+)

policyengine_us/reforms/tax_exempt/tax_exempt_reform.py

@@ -0,0 +1,86 @@
+from policyengine_us.model_api import *
+
+
+def create_tax_exempt() -> Reform:
+    class irs_gross_income(Variable):
+        value_type = float
+        entity = Person
+        label = "Gross income"
+        unit = USD
+        documentation = (
+            "Gross income, as defined in the Internal Revenue Code."
+        )
+        definition_period = YEAR
+        reference = "https://www.law.cornell.edu/uscode/text/26/61"
+
+        def formula(person, period, parameters):
+            sources = parameters(period).gov.irs.gross_income.sources
+            total = 0
+            not_dependent = ~person("is_tax_unit_dependent", period)
+            for source in sources:
+                # Add positive values only - losses are deducted later.
+                total += not_dependent * max_(0, add(person, period, [source]))
+            exempt_income = 0
+            p = parameters(period).gov.contrib.tax_exempt
+            if p.tip_income.income_tax_exempt:
+                tip_income = person("tip_income", period)
+                exempt_income += tip_income
+            if p.overtime.income_tax_exempt:
+                exempt_income += person("overtime_income", period)
+            return max_(total - exempt_income, 0)
+
+    class payroll_tax_gross_wages(Variable):
+        value_type = float
+        entity = Person
+        label = "Gross wages and salaries for payroll taxes"
+        definition_period = YEAR
+        unit = USD
+
+        def formula(person, period, parameters):
+            income = person("irs_employment_income", period)
+            p = parameters(period).gov.contrib.tax_exempt
+            exempt_income = 0
+            if p.tip_income.payroll_tax_exempt:
+                exempt_income += person("tip_income", period)
+            if p.overtime.payroll_tax_exempt:
+                exempt_income += person("overtime_income", period)
+            return max_(income - exempt_income, 0)
+
+    class tip_income(Variable):
+        value_type = float
+        entity = Person
+        label = "Tip income"
+        unit = USD
+        definition_period = YEAR
+        reference = "https://www.law.cornell.edu/cfr/text/26/31.3402(k)-1"
+
+    class overtime_income(Variable):
+        value_type = float
+        entity = Person
+        label = "Income from overtime hours worked"
+        unit = USD
+        definition_period = YEAR
+
+    class reform(Reform):
+        def apply(self):
+            self.update_variable(irs_gross_income)
+            self.update_variable(tip_income)
+            self.update_variable(payroll_tax_gross_wages)
+            self.update_variable(overtime_income)
+
+    return reform
+
+
+def create_tax_exempt_reform(parameters, period, bypass: bool = False):
+    if bypass:
+        return create_tax_exempt()
+
+    p = parameters(period).gov.contrib.tax_exempt
+
+    if p.in_effect:
+        return create_tax_exempt()
+    else:
+        return None
+
+
+tax_exempt_reform = create_tax_exempt_reform(None, None, bypass=True)

policyengine_us/tests/policy/contrib/tax_exempt/tax_exempt_reform.yaml

@@ -0,0 +1,62 @@
+- name: Overtime and tips are excluded from income and payroll tax
+  period: 2024
+  reforms: policyengine_us.reforms.tax_exempt.tax_exempt_reform.tax_exempt_reform
+  input:
+    gov.contrib.tax_exempt.in_effect: true
+    gov.contrib.tax_exempt.overtime.payroll_tax_exempt: true
+    gov.contrib.tax_exempt.overtime.income_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.payroll_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.income_tax_exempt: true
+    overtime_income: 10_000
+    tip_income: 10_000
+    irs_employment_income: 30_000
+  output:
+    irs_gross_income: 10_000
+    payroll_tax_gross_wages: 10_000
+
+- name: Reform does not apply
+  period: 2024
+  input:
+    gov.contrib.tax_exempt.in_effect: false
+    gov.contrib.tax_exempt.overtime.payroll_tax_exempt: true
+    gov.contrib.tax_exempt.overtime.income_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.payroll_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.income_tax_exempt: true
+    # overtime_income: 10_000
+    # tip_income: 10_000
+    irs_employment_income: 30_000
+  output:
+    irs_gross_income: 30_000
+    payroll_tax_gross_wages: 30_000
+
+- name: Overtime and tips are excluded from income but not payroll tax
+  period: 2024
+  reforms: policyengine_us.reforms.tax_exempt.tax_exempt_reform.tax_exempt_reform
+  input:
+    gov.contrib.tax_exempt.in_effect: true
+    gov.contrib.tax_exempt.overtime.payroll_tax_exempt: false
+    gov.contrib.tax_exempt.overtime.income_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.payroll_tax_exempt: false
+    gov.contrib.tax_exempt.tip_income.income_tax_exempt: true
+    overtime_income: 10_000
+    tip_income: 10_000
+    irs_employment_income: 30_000
+  output:
+    irs_gross_income: 10_000
+    payroll_tax_gross_wages: 30_000
+
+- name: Overtime is income tax exempt and tips are payroll tax exempt
+  period: 2024
+  reforms: policyengine_us.reforms.tax_exempt.tax_exempt_reform.tax_exempt_reform
+  input:
+    gov.contrib.tax_exempt.in_effect: true
+    gov.contrib.tax_exempt.overtime.payroll_tax_exempt: false
+    gov.contrib.tax_exempt.overtime.income_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.payroll_tax_exempt: true
+    gov.contrib.tax_exempt.tip_income.income_tax_exempt: false
+    overtime_income: 12_000
+    tip_income: 11_000
+    irs_employment_income: 30_000
+  output:
+    irs_gross_income: 18_000
+    payroll_tax_gross_wages: 19_000