Individual and Payroll Taxes

The Tax Module includes detailed tax calculators for individual income and payroll taxes. These calculators encompass all major provisions of the relevant tax code, including income provisions, deductions, ordinary and preferred tax rates, the Alternative Minimum Tax, all credits, FICA, SECA, and others.

To accommodate as many potential policy proposals as possible, we parameterize elements of the tax code wherever feasible. The model takes more than 300 tax parameters, incorporating features such as tax rates, limitations on tax expenditures, and inflation indexing rules. Certain tax schedules that are written specifically to describe current law are generalized to ensure flexibility (for example, Schedule D can accommodate an arbitrary number of preferred tax rates). If PWBM is modeling a policy that requires an entirely new element of the tax code, new parameters can easily be added.

Given the baseline projections described and the full set of tax parameters, the Tax Module produces a current-law projection of individual income tax and payroll tax liabilities for the entire population, including nonfilers in the case of payroll taxes.