FINAL RESULTS AS OF 2024-07-21 (after merge of PR 155)
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 calendar years 2023 and 2026. 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 3 estimates is Tax-Calculator 4.2.0 (after merge of PR 2774 on 2024-07-21).
Note that Tax-Calculator assumes 100% participation in credits (like CTC and EITC), while the federal agencies assume less than 100% participation. The implications of the differences in credit participation assumptions are discussed below the following tables.
CY2023 and CY2026 Payroll Tax Liability ($ billion)
(federal employee plus employer share)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 1580.0 | 1829.9 | CBO |
| 1523.8 | 1767.4 | Tax-Calculator + phase 3 dataset |
| 1489.3 | 1711.0 | Tax-Calculator + taxdata dataset |
CY2023 and CY2026 Individual Income Tax Liability ($ billion)
(federal individual income tax)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 2512.3 | 2849.4 | CBO (probably assumes less than 100% credit participation) |
| 2212.0 | 2786.1 | Tax-Calculator + phase 3 dataset (100% participation) |
| 2247.9 | 2742.2 | Tax-Calculator + taxdata dataset (100% participation) |
CY2023 and CY2026 CTC Tax Expenditure ($ billion)
(from the federal child tax credit)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 122.1 | 57.6 | JCT (assumes less than 100% participation) |
| 108.6 | 55.7 | TSY (probably assumes less than 100% participation) |
| 129.2 | 46.8 | Tax-Calculator + phase 3 dataset (100% participation) |
| 126.3 | 43.1 | Tax-Calculator + taxdata dataset (100% participation) |
CY2023 and CY2026 EITC Tax Expenditure ($ billion)
(from the federal earned income credit)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 71.9 | 78.0 | JCT (assumes less than 100% participation) |
| 63.6 | 71.2 | TSY (probably assumes less than 100% participation) |
| 75.8 | 84.8 | Tax-Calculator + phase 3 dataset (100% participation) |
| 73.5 | 82.0 | Tax-Calculator + taxdata dataset (100% participation) |
CY2023 and CY2026 SSBEN Tax Expenditure ($ billion)
(from excluding some social security benefits from federal AGI)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 45.9 | 56.4 | JCT |
| 31.4 | 38.4 | TSY |
| 53.3 | 72.2 | Tax-Calculator + phase 3 dataset |
| 62.7 | 89.5 | Tax-Calculator + taxdata dataset |
CY2023 and CY2026 NIIT Tax Expenditure ($ billion)
(from the 3.8% federal surtax on investment income)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| -56.5 | -53.8 | JCT |
| ---- | ---- | TSY |
| -57.0 | -55.1 | Tax-Calculator + phase 3 dataset |
| -55.8 | -52.1 | Tax-Calculator + taxdata dataset |
CY2023 and CY2026 CGQD Tax Expenditure ($ billion)
(from taxing long-term capital gains and qualified dividends at lower federal rates)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 259.3 | 239.8 | JCT |
| 153.9 | 182.4 | TSY |
| 234.3 | 232.5 | Tax-Calculator + phase 3 dataset |
| 217.7 | 223.6 | Tax-Calculator + taxdata dataset |
CY2023 and CY2026 QBID Tax Expenditure ($ billion)
(from the 20% federal qualified business income deduction)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 56.2 | 0.0 | JCT |
| 50.4 | 0.0 | TSY |
| 55.3 | 0.0 | Tax-Calculator + phase 3 dataset |
| 19.3 | 0.0 | Tax-Calculator + taxdata dataset |
CY2023 and CY2026 SALT Tax Expenditure ($ billion)
(from itemized deduction of state and local income/sales/property taxes)
| CY23 Amount | CY26 Amount | Estimate Source |
|---|---|---|
| 21.2 | 151.3 | JCT |
| 26.5 | 149.0 | TSY |
| 20.8 | 162.3 | Tax-Calculator + phase 3 dataset |
| 29.4 | 185.5 | Tax-Calculator + taxdata dataset |
Implication of Differing Credit Participation Assumptions
Tax-Calculator assumes that everyone eligible for a credit claims it, while the JCT (and presumably TSY) assumes that some who are eligible for a credit do not claim it. Here is what JCT says about its credit tax expenditure estimates: "Internal Revenue Service (IRS) statistics from recent tax returns are used to develop projections of the tax credits, deductions, and exclusions that will be claimed (or that will be denied in the case of negative tax expenditures) under the present-law baseline. These IRS statistics show the actual usage of the various tax expenditure provisions. In the case of some tax expenditures, such as the earned income credit, there is evidence that some taxpayers are not claiming all the benefits to which they are entitled, while others are filing claims that exceed their entitlements. The tax expenditure calculations in this report are based on projections of actual claims under the various tax provisions, not the potential tax benefits to which taxpayers are entitled." (Quote is from page 18 of the JCX-59-23 publication.)
The only IRS credit participation rates we have found are for the EITC, and they almost 80% and they are tax-unit participation rates rather than credit amount (or dollar) participation rates. (See this IRS document.)
Given the differing credit participation assumptions, it should be expected that the Tax-Calculator CTC and EITC tax expenditures are above the JCT estimates. The following calculations, which arbitrarily assume a 95% dollar participation rate, illustrate how the differing 2023 estimates are not as far apart as they seem.
CY2023 CTC and EITC Tax Expenditures ($ billion)
| CY23 Amount | Estimate Source |
|---|---|
| 122.1 | CTC JCT (assumes less than 100% participation) |
| 129.2 | CTC Tax-Calculator + phase 3 dataset (100% participation) |
| 122.7 | CTC Tax-Calculator + phase 3 dataset (95% participation) |
| 71.9 | EITC JCT (assumes less than 100% participation) |
| 75.8 | EITC Tax-Calculator + phase 3 dataset (100% participation) |
| 72.0 | EITC Tax-Calculator + phase 3 dataset (95% participation) |