We used the Tax Policy Center (TPC) microsimulation model to estimate tax expenditures and distributional effects. The model calculates tax liabilities for a weighted sample of individual income tax returns and can be used to analyze current law as well as alternative policies that change the tax code, including tax rates, the AMT, exemptions, deductions, and credits. It is based on the 2001 Public Use File (PUF) produced by the Statistics of Income Division (SOI) of the IRS. The PUF includes sample weights that can be used to produce population estimates. The PUF and sample weights are extrapolated to later years based on more recent SOI published data and Congressional Budget Office (CBO) economic projections, and imputations from other data sources of items not reported on tax returns. The model assumes that, conditional on income, deductions, family status, etc., individuals legally minimize their tax owed (for example, by correctly deciding whether to itemize deductions), but it does not incorporate any other types of behavioral responses, such as changes in labor supply, investment or consumption patterns in response to tax incentives.
This paper focuses on the design, development, and use of the Individual Taxpayer Burden Model (ITBM)-a microsimulation model developed jointly by IBM and the IRS to estimate the amount of time and money that individuals spend on federal tax compliance. First, the authors summarize the methodology that was used to define, measure, and model tax compliance burden. Next, they present estimates of overall compliance burden, and results from a simulation of economic and policy changes that took place between Tax Year 2000 and Tax Year 2001. Finally, they discuss applications of the burden model and review future development plans.
The Center for Retirement Research at Boston College, part of a consortium that includes parallel centers at the University of Michigan and the National Bureau of Economic Research, was established in 1998 through a grant from the Social Security Administration. The Center's mission is to produce first-class research and forge a strong link between the academic community and decision makers in the public and private sectors around an issue of critical importance to the nation's future. To achieve this mission, the Center sponsors a wide variety of research projects, transmits new findings to a broad audience, trains new scholars, and broadens access to valuable data sources.
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