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Add to the income tax a refundable payroll tax credit (RPTC) #2366

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merged 5 commits into from Aug 6, 2019

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@martinholmer
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commented Aug 2, 2019

This pull request implements, as part of the income tax, a Refundable Payroll Tax Credit (RPTC) that can be used to emulate a payroll tax exemption as discussed in issue #2362.

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commented Aug 2, 2019

Codecov Report

Merging #2366 into master will not change coverage.
The diff coverage is 100%.

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@@          Coverage Diff           @@
##           master   #2366   +/-   ##
======================================
  Coverage     100%    100%           
======================================
  Files          13      13           
  Lines        2745    2748    +3     
======================================
+ Hits         2745    2748    +3
Impacted Files Coverage Δ
taxcalc/calculator.py 100% <100%> (ø) ⬆️
taxcalc/parameters.py 100% <0%> (ø) ⬆️

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commented Aug 2, 2019

@martinholmer, thanks again for helping find a solution to #2362 .

This may have been intentional, but I'd like to point out a slight discrepancy in the ways PEIC is calculated versus EITC. The self-employment income used to calculate earnings for PEIC is adjusted downward by sey_frac (the portion of payroll tax that would have been paid by the employer) as shown in these lines:

was_plus_sey_p = gross_was_p + max(0., sey_p * sey_frac)
was_plus_sey_s = gross_was_s + max(0., sey_s * sey_frac)

On the other hand, the self-employment income used to calculate earnings for EITC is not adjusted by sey_frac as seen here:

earned = max(0., e00200p + e00200s + sey - c03260)

Again, this may have been intentional since the original purpose of the PEIC is to emulate a payroll tax exemption, but I wanted to raise the issue.

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commented Aug 2, 2019

@Peter-Metz said in PR #2366:

This may have been intentional, but I'd like to point out a slight discrepancy in the ways PEIC is calculated versus EITC. The self-employment income used to calculate earnings for PEIC is adjusted downward by sey_frac (the portion of payroll tax that would have been paid by the employer) as shown in these lines:

was_plus_sey_p = gross_was_p + max(0., sey_p * sey_frac)
was_plus_sey_s = gross_was_s + max(0., sey_s * sey_frac)

On the other hand, the self-employment income used to calculate earnings for EITC is not adjusted by sey_frac as seen here:

earned = max(0., e00200p + e00200s + sey - c03260)

Again, this may have been intentional since the original purpose of the PEIC is to emulate a payroll tax exemption, but I wanted to raise the issue.

@Peter-Metz, Thanks very much for the close review of the pull request.
This is exactly the issue I alluded to this morning during our phone call.

Now that I look at this more closely, aren't the earned and was_plus_sey_? variables the same with respect to the "employer" share of SECA? Isn't sey - c03260 that same as max(0., sey * sey_frac) (apart from the Medicare difference)? Or am I confused by my jet lag?

In addition to the difference you mention above, earned excludes pension contributions, which are definitely used to compute payroll taxes.

So, because this is not current law or a concrete reform proposal, we're forced to make it up. I doubt if the requestor has thought through things this far, so it would not be helpful to ask him. How do you think the PEIC should define earnings?

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commented Aug 2, 2019

@MattHJensen, Can you review PR #2366? That would be very helpful because you are the person talking to the requestor.

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commented Aug 2, 2019

@martinholmer said:

Now that I look at this more closely, aren't the earned and was_plus_sey_? variables the same with respect to the "employer" share of SECA? Isn't sey - c03260 that same as max(0., sey * sey_frac) (apart from the Medicare difference)?

I see now. I believe your observation is correct. c03260 calculates the "deductible part of self-employment tax" which is half of self-employment tax owed (0.5 * setax), before sey_frac is involved. I believe this is the same as simply multiplying sey_ by sey_frac.

Given this equivalence, I think this is an appropriate definition of earnings.

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commented Aug 2, 2019

@Peter-Metz concluded:

Given this equivalence, I think [the current version] is an appropriate definition of earnings [for the PEIC].

Thanks again for bringing this up. I needed to think this through more carefully than I had done before.

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commented Aug 5, 2019

@martinholmer, yes, I will review #2366 this morning.

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commented Aug 5, 2019

This looks good to me other than a couple of cosmetic issues:

  • I found two instances of "positve" -- with only one "i".

  • What do you think about calling this a "Personal Payroll Credit" (or something else) rather than a Personal Earned Income Credit? I am concerned about a couple of aspects of the PersonalEIC/peic naming that might confuse our users: 1) personal EIC and individualized EIC are quite similar. I expect it will be difficult for users to remember which is which. 2) I often hear people refer to "earned income" in reference to the specific income measure used in the Earned Income Credit. I expect some users will be surprised to learn that the PersonalEIC uses a completely different measure of income -- not just an individualized/personalized "earned income."

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commented Aug 6, 2019

@MattHJensen said:

I found two instances of "positve" -- with only one "i".

Where? I did a recursive grep and did not find any instances:

iMac:Tax-Calculator mrh$ grep -r --include="*" positve .
iMac:Tax-Calculator mrh$ 
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commented Aug 6, 2019

@martinholmer, the notes for PEIC_rt and PEIC_c in policy_current_law.json.

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commented Aug 6, 2019

@MattHJensen, I see. You meant to say I found two instances of "Positve" -- with only one "i".

martinholmer added 2 commits Aug 6, 2019

@martinholmer martinholmer reopened this Aug 6, 2019

@martinholmer martinholmer changed the title Add a refundable Personal Earned Income Credit (PEIC) Add to the income tax a refundable payroll tax credit (RPTC) Aug 6, 2019

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commented Aug 6, 2019

+1 for RPTC and the PR generally. Thanks a lot for your help with this user's request @martinholmer and @Peter-Metz.

@martinholmer martinholmer merged commit 14c310b into PSLmodels:master Aug 6, 2019

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@martinholmer martinholmer deleted the martinholmer:peic branch Aug 6, 2019

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