Improving CBO's methodology for projecting individual income tax revenues

Original publisher: [Washington, D.C.] : Congress of the U.S., Congressional Budget Office, [2011] OCLC Number: (OCoLC)703274325 Subject: Taxation -- United States. Excerpt: ... 7 provisions of the tax code. Different tax provisions apply to different types of income and families. Because both the tax code and the characteristics of the population are changing over time, the microsimulation approach allows the model to reflect inter-actions between changes in the law and in the filing population's characteristics that affect revenues. Once the sample of tax returns for a particular year has become available, CBO " ages " the sample from the base year to subsequent years by using actual data on the growth of the population and of income for the initial years and its projections of such growth for later years. CBO estimates changes in the different types of income reported on tax returns ( such as earnings, interest, and dividends ) on the basis of two factors: the actual history of comparable measures of those types of income available in the national income and product accounts ( NIPAs ) and CBO's projections of those 8 measures for future years. The NIPA measures of income do not exactly match the corresponding tax return measures because of differences in what each covers. In addi-tion, certain kinds of income reported on tax returns, such as capital gains realizations and retirement income, have no analog in the NIPAs, and CBO must estimate those components of income separately. CBO also incorporates population growth into the model, using detailed estimates developed by the Social Security Administration, which are disaggregated by age, sex, and marital status. CBO calculates the tax liability of each taxpayer in the sample by applying those esti-mates of changes in the distribution of income and the population as well as the effects of scheduled changes in the tax code. To generate total individual income tax liability for the entire population, CBO appli...