Recipe 2: Estimating Behavioral Response to Reform¶

This is an advanced recipe that should be followed only after mastering the basic recipe. This recipe shows how to analyze the behavioral responses to a tax reform using the Behavioral-Responses behresp package.

import taxcalc as tc
import behresp

# use publicly-available CPS input file
recs = tc.Records.cps_constructor()

# specify baseline Calculator object representing current-law policy
pol = tc.Policy()
calc1 = tc.Calculator(policy=pol, records=recs)

CYR = 2020

# calculate aggregate current-law income tax liabilities for cyr
calc1.advance_to_year(CYR)
calc1.calc_all()
itax_rev1 = calc1.weighted_total('iitax')

# specify Calculator object for static analysis of reform policy
pol.implement_reform(tc.Policy.read_json_reform('github://PSLmodels:[email protected]/docs/recipes/_static/reformA.json'))
calc2 = tc.Calculator(policy=pol, records=recs)

# calculate reform income tax liabilities for cyr under static assumptions
calc2.advance_to_year(CYR)
calc2.calc_all()
itax_rev2sa = calc2.weighted_total('iitax')

# specify assumed non-zero response-function substitution elasticity
response_elasticities = {'sub': 0.25}

# specify Calculator object for analysis of reform with behavioral responses
calc2 = tc.Calculator(policy=pol, records=recs)
calc2.advance_to_year(CYR)
_, df2br = behresp.response(calc1, calc2, response_elasticities)

# calculate reform income tax liabilities for CYR with behavioral response
itax_rev2br = (df2br['iitax'] * df2br['s006']).sum()

# print total income tax revenue estimates for CYR
# (estimates in billons of dollars)
print('{}_CURRENT_LAW_P__itax_rev($B)= {:.3f}'.format(CYR, itax_rev1 * 1e-9))
print('{}_REFORM_STATIC__itax_rev($B)= {:.3f}'.format(CYR, itax_rev2sa * 1e-9))
print('{}_REFORM_DYNAMIC_itax_rev($B)= {:.3f}'.format(CYR, itax_rev2br * 1e-9))

2020_CURRENT_LAW_P__itax_rev($B)= 706.266
2020_REFORM_STATIC__itax_rev($B)= 709.416
2020_REFORM_DYNAMIC_itax_rev($B)= 697.679

Create multi-year diagnostic tables for

baseline,
reform excluding behavioral responses, and
reform including behavioral responses

NUM_YEARS = 3  # number of diagnostic table years beginning with CYR
dtable1 = calc1.diagnostic_table(NUM_YEARS)
dtable2 = calc2.diagnostic_table(NUM_YEARS)
dvar_list3 = list()
year_list3 = list()
for year in range(CYR, CYR + NUM_YEARS):
    calc1.advance_to_year(year)
    calc2.advance_to_year(year)
    _, df2br = behresp.response(calc1, calc2, response_elasticities)
    dvar_list3.append(df2br)
    year_list3.append(year)
dtable3 = tc.create_diagnostic_table(dvar_list3, year_list3)

Diagnostic table for baseline:

dtable1

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11338.141	12179.072	12493.294
Itemizers (#m)	27.290	28.290	27.850
Itemized Deduction ($b)	736.068	764.940	753.160
Standard Deduction Filers (#m)	177.190	178.780	181.810
Standard Deduction ($b)	3083.463	3132.356	3242.300
Personal Exemption ($b)	0.000	0.000	0.000
Taxable Income ($b)	8374.450	9131.561	9397.785
Regular Tax ($b)	1450.584	1587.201	1642.653
AMT Income ($b)	10790.162	11608.060	11932.306
AMT Liability ($b)	0.870	1.150	1.103
AMT Filers (#m)	0.400	0.460	0.440
Tax before Credits ($b)	1451.454	1588.351	1643.756
Refundable Credits ($b)	657.477	824.253	102.728
Nonrefundable Credits ($b)	98.706	3.963	104.219
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.995	11.778	12.343
Ind Income Tax ($b)	706.266	771.913	1449.152
Payroll Taxes ($b)	1206.916	1261.889	1318.277
Combined Liability ($b)	1913.182	2033.802	2767.428
With Income Tax <= 0 (#m)	136.220	130.490	99.020
With Combined Tax <= 0 (#m)	98.650	99.800	69.200
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Diagnostic table for reform, excluding behavioral responses:

dtable2

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11338.141	12179.072	12493.294
Itemizers (#m)	27.220	28.210	27.790
Itemized Deduction ($b)	733.674	762.331	750.924
Standard Deduction Filers (#m)	177.260	178.860	181.880
Standard Deduction ($b)	3084.664	3133.826	3243.464
Personal Exemption ($b)	375.177	383.210	394.035
Taxable Income ($b)	8127.757	8871.750	9134.674
Regular Tax ($b)	1451.263	1588.537	1645.451
AMT Income ($b)	10792.419	11610.513	11934.461
AMT Liability ($b)	0.970	1.260	1.208
AMT Filers (#m)	0.410	0.470	0.460
Tax before Credits ($b)	1452.234	1589.797	1646.659
Refundable Credits ($b)	660.804	824.253	106.433
Nonrefundable Credits ($b)	93.009	3.766	98.498
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.995	11.778	12.343
Ind Income Tax ($b)	709.416	773.556	1454.071
Payroll Taxes ($b)	1206.916	1261.889	1318.277
Combined Liability ($b)	1916.332	2035.445	2772.347
With Income Tax <= 0 (#m)	138.500	132.710	101.590
With Combined Tax <= 0 (#m)	99.400	100.750	69.840
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Diagnostic table for reform, including behavioral responses:

dtable3

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11312.526	12150.009	12463.637
Itemizers (#m)	27.200	28.190	27.760
Itemized Deduction ($b)	732.325	760.965	749.283
Standard Deduction Filers (#m)	177.290	178.880	181.910
Standard Deduction ($b)	3085.261	3134.416	3244.205
Personal Exemption ($b)	375.177	383.210	394.035
Taxable Income ($b)	8102.428	8842.848	9105.702
Regular Tax ($b)	1439.730	1575.752	1632.436
AMT Income ($b)	10767.920	11582.619	11906.171
AMT Liability ($b)	0.984	1.319	1.233
AMT Filers (#m)	0.420	0.480	0.450
Tax before Credits ($b)	1440.715	1577.071	1633.669
Refundable Credits ($b)	660.506	824.209	106.152
Nonrefundable Credits ($b)	93.249	3.781	98.725
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.720	11.483	12.045
Ind Income Tax ($b)	697.679	760.564	1440.837
Payroll Taxes ($b)	1206.275	1261.031	1317.418
Combined Liability ($b)	1903.954	2021.595	2758.255
With Income Tax <= 0 (#m)	138.480	132.670	101.400
With Combined Tax <= 0 (#m)	99.380	100.720	69.650
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Tax-Calculator

Recipe 2: Estimating Behavioral Response to Reform¶