USE OF MICROSIMULATION MODELS AT THE U.S. CONGRESSIONAL BUDGET
OFFICE
Presented at a Workshop on Microsimulation Modelling for Fiscal Policy Analysis
David Weiner (former Assistant Director for Tax Analysis at CBO)
September 23, 2016
ABOUT CBO
• Established in 1975 to produce independent analyses of budgetary and economic issues to support the Congressional budget process.
• Approximately 230 employees most of whom have graduate degrees in economics or a related field.
• Products include regular updates about the budget outlook, cost estimates of the effect of proposed legislative changes, and reports analyzing the budget and economic impact of federal policies.
• CBO explains the basis for its estimates in an effort to be as transparent as possible.
Other Types of Reports
Cost Estimates
“Dynamic” Scoring
CBO’S INDIVIDUAL INCOME TAX SIMULATION MODEL
• Based on administrative tax records statistically matched to household survey data in order to capture households who don’t file tax returns, and to capture income items not reported on tax returns.
• CBO maintains historical data for the years 1979 through the latest available year (2014) in order to look at trends over time.
• Each tax record is run through a detailed tax calculator in order to determine the income and payroll tax liability for each record.
• CBO is developing benefit calculators as well in order to analyze the combined effects of the tax and transfer systems.
PROJECTING MICROSIMULATION DATA
• CBO’s macroeconomic forecast is the source of the overall projections of income.
• CBO separately produces detailed population projections (age, sex, marital status) that are applied to the relevant returns in the sample.
• Some income sources are not part of the macro forecast and must be projected separately (e.g., capital gains, pension distributions, itemized deductions, certain business income reported on individual returns.
• Projections for the wage distribution take into account the employment projections as well as past trends in the growth of wage inequality.
USE OF CBO’S INDIVIDUAL MODEL FOR DISTRIBUTIONAL ANALYSES
Lorenz Curves
OTHER USES OF MICROSIMULATION AT CBO
• Tax Analysis Division
• Estate and Gift Modeling
• Corporate micro data files
• Federal Reserve’s Treasury Bond Portfolio
• Other Divisions
• CBO’s Long Term Model for Social Security
• CBO’s Health Insurance Simulation Model
CBO REPORTS REFERENCED
The Budget and Economic Outlook: 2016 to 2026 (https://www.cbo.gov/publication/51129) The 2016 Long-Term Budget Outlook (https://www.cbo.gov/publication/51580) The U.S. Military’s Force Structure: A Primer (https://www.cbo.gov/publication/51535) Trends in the Joblessness and Incarceration of Young Men (https://www.cbo.gov/publication/51495) Potential Increases in Hurricane Damage in the United States: Implications for the Federal Budget (https://www.cbo.gov/publication/51518) Budgetary and Economic Effects of Repealing the Affordable Care Act (https://www.cbo.gov/publication/50252) Trends in the Distribution of Household Income Between 1979 and 2007 (https://www.cbo.gov/publication/42729) The Distribution of Household Income and Federal Taxes, 2013 (https://www.cbo.gov/publication/51361)
CBO REPORTS REFERENCED (CONTINUED)
The Effects of Potential Cuts in SNAP Spending on Households With Different Amounts of Income (https://www.cbo.gov/publication/49978) Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016 (https://www.cbo.gov/publication/50923) How CBO Estimates the Effects of the Affordable Care Act on the Labor Market (http://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf) CBO’s 2015 Long-Term Projections for Social Security: Additional Information (https://www.cbo.gov/publication/51047) Federal Subsidies for Health Insurance Coverage for People Under Age 65: Tables From CBO’s March 2016 Baseline (https://www.cbo.gov/sites/default/files/51298-2016-03-HealthInsurance.pdf) Microsimulation of Demand for Health Insurance (https://www.cbo.gov/publication/50948)
