The Use of Microsimulation Models to Inform US Tax Policymaking
- Non-Resident Fellow, Urban Institute and Urban-Brookings Tax Policy Center, United States
Cite this article
as: E. Toder; 2024; The Use of Microsimulation Models to Inform US Tax Policymaking; International Journal of Microsimulation; 17(3); 1-20.
doi: 10.34196/ijm.00314
Tables
Table 1
Divided Power in US Political System.
| Federal | State | Local | |
|---|---|---|---|
| Executive Branch | President/Independent Agencies | Governors | Mayors/City Managers |
| Legislative Branch | House and Senate | Upper and Lower Houses (mostly) | City Councils and other |
| Judicial Branch | US Supreme Court and District Courts | State Courts | Local Courts |
| Major Fiscal Responsibilities | Defense and Foreign Policy, Health, and Retirement Benefit Programs, Other | Most Public Services (Education, Prisons, Police, Roads etc.) | Public Services as Delegated by States |
| Major Sources of Revenue | Individual Income Tax, Payroll Tax, Corporate Income Tax | Income and Sales Taxes | Mostly Local Property Taxes |
Table 2
Who Supplies Data and Estimates for Federal Agencies.
| Data | For Congress | For Executive Branch |
|---|---|---|
| Baseline Economic Forecast | Congressional Budget Office | Treasury/Office of Management and Budget/Council of Economic Advisors |
| Baseline Receipts | Congressional Budget Office | Treasury |
| Revenue Effects of Legislation | Joint Tax Committee | Treasury |
| Spending Effects of Legislation | Congressional Budget Office | Office of Management and Budget/Program Agencies |
| Tax Expenditures | Joint Tax Committee | Treasury |
| Distributional Estimates | Congressional Budget Office/Joint Tax Committee | Treasury |
| Macroeconomic Effects of Tax Legislation | Joint Tax Committee/Congressional Budget Office | Council of Economic Advisors |
Table 3
Types of Models Used in Tax Policy Analysis.
| Type of Model | Intended Use | Data Sources |
|---|---|---|
| Static Microsimulation Models | Estimating effects on receipts and income distribution of changes in individual income and payroll taxes | Samples of Individual Tax Returns Produced by Internal Revenue Service, augmented by survey data from US Census Bureau (Current Population Survey), Federal Reserve Board (Survey of Consumer Finances), Bureau of Labor Statistics (Consumer Expenditure Survey) and other agencies |
| General equilibrium and growth models with full employment | Estimates of long-term effects on output of major tax policy changes by government agencies and academic economists | National Income Data Produced by US Department of Commerce, Bureau of Economic Analysis and selected summary data from Internal Revenue Service, Statistics of Income Division |
| Keynesian growth models | Estimates of short-term effect of tax policy changes on GDP, the rate of inflation and other macro-economic aggregates | National Income Data produced by US Department of Commerce, Bureau of Economic Analysis and selected summary data from Internal Revenue Service, Statistics of Income Division |
| Sectoral Models | Estimates of effects on selected markets, including markets for energy, health care, housing, and other assets. | Current Population Survey, National Income and Product Accounts and specialized data sets produced by US Energy Information Administration, US Department of Health and Human Services, and other agencies |
Table 4
Estimated Budgetary Effects of 2017 Tax Cuts and Jobs Act (in billions of dollars).
| Change in Budget Surplus | Fiscal Years 2018-27 | Fiscal Year 2027 |
|---|---|---|
| Individual and Estate Taxes (Including the Qualified Business Income Deduction) | -1,126.6 | 83.0 |
| Corporate and International Taxes | -329.4 | -50.2 |
| Subtotal: Conventional Estimates | -1,456.8 | 32.9 |
| Macroeconomic Effects | 384.6 | 35.5 |
| Total with Macroeconomic Effects | -1071.4 | 68.4 |
Table 5
Changes in Average Federal Tax Rate by Income Group from 2017 Tax Cuts and Jobs Act (in percent).
| Income Group | 2018 | 2025 | 2027 |
|---|---|---|---|
| Bottom quintile | -0.4 | -0.4 | 0.1 |
| Middle quintile | -1.4 | -1.1 | 0.0 |
| Top quintile | -2.2 | -1.7 | -0.3 |
| Top 1 percent | -2.3 | -1.9 | -0.6 |
| All | -1.8 | -1.4 | -0.1 |
-
Source: Urban-Brookings Tax Policy Center.
Table 6
Estimated Effects of Tax Cuts and Jobs Act on GDP (in percent).
| Organization | 2018-20 | 2018-27 | 2027 | % Revenue Feedback, 2018-27 |
|---|---|---|---|---|
| Tax Foundation | 0.9 | 2.1 | 2.9 | 69.5 |
| Congressional Budget Office | 0.6 | 0.7 | 0.6 | 31.0 |
| International Monetary Fund | 0.8 | 0.6 | -0.1 | n.a. |
| Tax Policy Center | 0.7 | 0.5 | 0.0 | 12.8 |
| Moody’s | 0.4 | 0.3 | 0.4 | n.a. |
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Source: Gale et al. (2018).
Data and code availability
The paper does not present any original data not cited in other publications.
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