The state and state distribution analyzes and sales estimates produced by ITEP are based on data from the ITEP microsimulation tax model. First developed in 1996, the model calculates the return on revenue and the incidence of federal, state and local taxes, including current tax law and proposed changes to tax law. The model is unique in its ability to conduct federal and state level analyzes and analyze income, consumption, and property taxes.
The basic model consists of detailed records of income, taxes paid, and other characteristics for approximately three quarters of a million “tax units” (ie applicants and non-applicants), one of the largest tax return databases available to the public. The model is currently calibrated to reflect detailed population characteristics in 2015. It includes detailed data at the national, regional, and state levels on taxes, income, and a variety of other socio-economic indicators published by the IRS, the Census, the Bureau of Labor Statistics, and the Bureau of Economic Analysis, among other U.S. data agencies. Information from all of these data sources is used to “age” the detailed income and other characteristics of the control units in the ITEP control microsimulation database. The model also includes the latest available detailed data from federal and state tax law.
The federal ITEP model’s tax calculations are similar to those of the Joint Tax Committee of Congress, the US Treasury Department, and the Congressional Budget Office, although each of these models differs in different ways in how the results are presented. Some state government agencies, such as the Minnesota Treasury Department, maintain similar models that can be used to analyze tax rates within state boundaries. However, the ITEP model can be used to model both federal and state politics on the basis of 50 states, which is not found in any government model.
Below is an overview of each area of the ITEP model and its features:
The income tax model analyzes the revenues and incidence of current federal and state income taxes and change options, including changes in:
- Interest rates, including special rates on capital gains, dividends, and pass-through business income
- Inclusion or exclusion of various types of income from the tax base
- Inclusion or exclusion of all federal and state adjustments
- Exemption amounts and a variety of exemption types and, if necessary, expiry methods
- Standard deduction amounts and a variety of standard deduction types and amounts
- Itemized deductions and withdrawal exit
- Credits such as income and childcare credits, as well as credits for property and wage taxes
- Thresholds for filing tax returns
- Alternative minimum taxes
The consumption tax model analyzes the return on income and the incidence of current sales and consumption taxes. It is also able to analyze the revenue and incidence effects of a wide range of base and rate changes in general sales taxes, special sales taxes, fuel, tobacco, alcohol and cannabis excise taxes. There are more than 250 base items available for modification in the model, reflecting differences in the sales tax base between states and possible changes. The model also includes modules for visitor consumption, which reflect the in-state purchases made by residents of other states or countries, and business consumption modules, which reflect the in-state purchases made by local and national businesses.
The real estate tax model analyzes the return on income and the incidence of current state and local taxes on real estate and personal property. It can also analyze the revenue and incidence effects of statewide property tax changes, including the effects of breakers, homestead exemptions, and rate and valuation caps.
Local taxes: The model can analyze national income and the incidence of local taxes (but not broken down by location).
ITEP MODEL DATA SOURCES
The ITEP model is a “microsimulation model”. That is, a very large stratified sample of tax returns and other data that has aged to the year to be analyzed is being worked on. This is the same tax model used by the US Treasury Department, the Joint Tax Committee of Congress, and the Congressional Budget Office. The ITEP model uses the following microdata sets and aggregated data:
IRS 1988 Individual Public Use Tax File, Level III sample; IRS Individual Public Use Tax Files; Current population survey; Consumer survey; US Census; American Community Survey.
Partial list of aggregated data sources:
Various IRS dates; Congressional Budget Office and Joint Tax Forecasting Committee; other economic data (commercial department, WEFA, etc.); Data from the state tax authority; Data on the total consumption of certain goods (trade department, census of services, etc.); country-specific consumption and excise tax data (census data, government finances, etc.); country-specific property tax data (public finances, etc.); American Housing Survey; Census of housing; Energy information management; Federal Motorway Administration; BDS Analytics; Zillow Group, Inc .; Centers for Disease Control and Prevention; Kaiser Family Foundation; National Equity Atlas (produced by PolicyLink and the USC Environmental and Regional Justice Program); Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence; Survey on the financing of rental apartments.
Frequently asked questions about the ITEP model
ITEP approach to modeling taxes by race and ethnicity