Changes caused by using variables in taxdata add-k1bx14 branch

[martinholmer]

This pull request contains changes in Tax-Calculator logic associated with the revised and new variables generated by taxdata pull request 107.

These Tax-Calculator changes, along with the changes in taxdata pull request 107, are meant to resolve the Tax-Calculator bug described in Tax-Calculator issue 1436.

[codecov-io]

Codecov Report

Merging #1438 into master will increase coverage by <.01%.
The diff coverage is 100%.

@@            Coverage Diff             @@
##           master    #1438      +/-   ##
==========================================
+ Coverage   99.71%   99.71%   +<.01%     
==========================================
  Files          40       40              
  Lines        2786     2788       +2     
==========================================
+ Hits         2778     2780       +2     
  Misses          8        8

Impacted Files	Coverage Δ
taxcalc/calculate.py	100% <ø> (ø)	⬆️
taxcalc/records.py	98.8% <100%> (ø)	⬆️

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[martinholmer]

When using the new puf.csv file produced by taxdata pull request 107, the logic changes in taxcalc pull request #1438 produce a small increase in payroll tax revenue. For example, in 2022 under current law, these data and logic changes cause an increase of $3.2 billion in payroll taxes, which is an increase of only about one-quarter of one percent.

While these changes have only modest effects on current-law policy estimates, they are important changes for any analysis of the revenue effects of relabeling income under tax reforms that lower tax rates on self-employment income generated by partnerships and S corporations below tax rates on wage and salary income. See, for example, Neil Irwin's 4/28/2017 New York Times article entitled "Under the Trump Tax Plan, We Might All Want to Become Corporations," which is here.

[martinholmer]

The paired taxdata pull request 107 and taxcalc pull request 1438 are now ready for review.

I'm particularly interested in comments about whether or not the documentation (in the revised records_variables.json file) of the new k1bx14p and k1bx14s variables is correct. Is it, in fact, true that Schedule K-1 Box 14 "self-employment earnings (loss)" is part of the SOI PUF variable e26270 (which is defined in the PUF documentation as "Combined partnership and S corporation net income/loss")? I couldn't find any information about e26270 other than that short variable definition.

@MattHJensen @feenberg @Amy-Xu @andersonfrailey @hdoupe

[martinholmer]

@codykallen, I'm hoping you can review the logic changes in Tax-Calculator pull request #1438.
Also, I'd like your views on the documentation question I asked in my prior comment in #1438.
Thanks for your time looking this over.

[martinholmer]

@martinholmer asked about pending pull request #1438:

I'm particularly interested in comments about whether or not the documentation (in the revised records_variables.json file) of the new k1bx14p and k1bx14s variables is correct. Is it, in fact, true that Form 1065 Schedule K-1 Box 14 "self-employment earnings (loss)" is part of the SOI PUF variable e26270, which is defined in the PUF documentation as "Combined partnership and S corporation net income/loss"?

Here is a summary of a private email exchange on this matter.

@martinholmer said:

Pending taxdata pull request 107) that adds taxpayer and spouse values of Form 1065 Schedule K-1 box 14 to our puf.csv file. This pull request does not change the value of other variables that were already included in the puf.csv file.

My question is this: if a user wants to add a dollar to the new box14 variable, should that user also add a dollar to the e26270 variable? As best I can tell, the answer is yes because the e26270 variable includes the box14 value (and many other items as well). I'm imagining that this is similar to the relationship between dividends (e00900) and qualified dividends (e00950) in that when adding a dollar to qualified dividends, one must also add a dollar to dividends (because qualified dividends are included in dividends).

@feenberg responded:

I am pretty sure you are right. Box 14 exists so that FICA tax can be calculated correctly. If you were to change Box 14 and not change the Schedule E total [that is, e26270] then income tax wouldn't change at all.