Economic Analysis of Tax Policy 2023

The NBER supports research on the economic effects of tax policies in two ways. First, it maintains a sophisticated federal and state income tax calculator (TAXSIM) that can be used to estimate the total tax burdens as well as the marginal tax rates on households with sources and amounts of income, and with a limited set of characteristics. Computing these tax rates makes it possible to carry out a wide range of empirical research on the links between taxes and household behavior. For example, a researcher who is interested in studying the portfolio effects of the differential tax burden on interest income relative to that on realized capital gains might use the TAXSIM calculator to estimate the marginal interest, dividend, and capital gains tax rates on a sample of households in a survey database that includes information on financial asset holdings, and then test whether those with relatively higher tax rates on interest income tend to invest more of their assets in equity rather than bonds.

The NBER TAXIM model is a key resource for researchers. It is widely used by those who are studying survey or administrative record data; they typically calculate the relevant tax rates for surveyed households and then study how taxes affect behavior. In some recent years, more than one hundred new research studies have used TAXSIM code. These papers are published in many different outlets, including some of the most prestigious academic journals. TAXSIM functions like a publicly-available tax preparation software package, except that it is configured to work with a large sample of de-identified U.S. tax returns and to estimate tax burdens under the current tax system and various possible reforms. This makes it possible to calculate the distributional and revenue effects of various alternatives to the status quo. TAXSIM offers an independent source of information on the likely effects of different tax reform proposals, distinct from the analyses that are presented by the U.S. Treasury Department and the Joint Committee on Taxation.

The second way in which the NBER supports research on tax policy is by convening the Tax Policy and the Economy (TP&E) meeting in Washington, DC, each September. NBER commissions papers for this meeting, and then hosts an event at which researchers present their findings on the behavioral impact of taxation or government transfer programs. TP&E, generously supported by the Foundation since 2010, facilitates interaction between leading scholars from the research community and key policy-makers in Washington. TP&E helps to make participants in the policy process aware of new research findings related to the tax system and to closely-connected benefit programs. It also helps academic researchers identify emerging issues on the policy agenda.