An Overview of CBO’s Microsimulation Tax Model

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CONGRESSIONAL BUDGET OFFICE
An Overview of CBO’s
Microsimulation Tax Model
June 2018

1
CBO
The Microsimulation
Tax Model

2
CBO
Purposes of the Model
 Revenue forecasts: projections of individual income and payroll taxes
under current law for ...

3
CBO
The Microsimulation Modeling Approach
 Microsimulation modeling applies the rules of the tax system to each
member ...

4
CBO
The Structure of the Model
 The model has three core components:
– Several data preparation routines, which allow C...

5
CBO
Data

6
CBO
Primary Data
 The Statistics of Income (SOI) individual income tax file provides the
primary data used by the tax m...

7
CBO
 Because the primary tax return data do not provide all of the information
necessary to project the future tax base...

8
CBO
Projection Algorithm

9
CBO
Projecting the Future Tax Base:
A Multistep Process
 Analyzing the future effects of the income tax system requires...

10
CBO
Step 1: Population
 The Congressional Budget Office Long-Term model provides projections
of the population by age,...

11
CBO
Step 2: Employment
 CBO’s Macroeconomic Analysis Division provides a forecast of
aggregate employment.
 The tax m...

12
CBO
Step 3: Presence of Certain Income Sources
 CBO’s Health, Retirement, and Long-Term Analysis Division and Budget
A...

13
CBO
Step 4: Income Totals
The national income and product accounts are official U.S. accounts that track the amount and...

14
CBO
Growth in Taxable Income: Data Sources
Component of Taxable
Income
Data Source for Projected Growth Rates
Wages and...

15
CBO
Step 5: Income Distribution
 The projection algorithm holds the distribution of most income sources
roughly consta...

16
CBO
Sources: Congressional Budget Office, using data from Kopczuk, Saez, and Song (2010) and the Social Security Admini...

17
CBO
Adjusted gross income comprises income from many sources, including wages and salaries, interest, dividends, capita...

18
CBO
Tax Calculator

19
CBO
The Microsimulation Model’s Tax Calculator
 The core of the model is an income and payroll tax calculator, which c...

20
CBO
For additional data and explanatory notes, see Table 3, “Individual Income Tax Baseline Detail in CBO's April 2018 ...

21
CBO
 Revenue forecasts:
– The Budget and Economic Outlook: 2018 to 2028 (April 2018),
www.cbo.gov/publication/53651.
–...

22
CBO
 Analyses of the macroeconomic effects of changes to tax policy:
– “Appendix B: The Effects of the 2017 Tax Act on...

23
CBO
These slides were prepared to enhance the transparency of the work of
the Congressional Budget Office and to encour...

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