Federal tax impact

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    IMPLAN Support
    HI James, Primary explanation: When you do a Labor Income Change event in IMPLAN, the Results (including the Tax Impact results) include only the effects of the spending of that employee compensation, i.e. only induced effects. In other words, the taxes paid by the workers at the places where the direct employees spent their money. In the Summary Results tab, you will notice that Labor Income, Value-Added, and Output changes (likely, depending on which region you are using) are all less than $1,000,000 and that there is no direct effect. The direct effect of $1,000,000 is represented only as a “Direct Factor Change”. So, the federal tax revenue does not include payroll taxes or income taxes on the initial $1,000,000, only on the resulting induced effects. Other factors: Besides this, there are several other reasons that estimates of federal tax revenue would not have an obvious relationship to headline tax rates. You identified one, which is earnings over the FICA max, and another notable one is negative tax paid by low-income households. Also, please note that the region does matter for federal tax effects for several reasons. One is that the income distribution among households has implications for how much tax is paid, and these distributions vary across areas. IMPLAN’s tax impact estimates take into account effective income tax rates, which can be negative for low-income households (via EITC, for example). If the region in question has a relatively high proportion of low-income households, federal tax rates might be lower than expected. Another is that spending patterns would differ among regions, and spending in different amounts across different industries leads to variable tax effects. One Solution: Navigate to Explore>Social Accounts>IxC Social Accounting Matrix. The value in the “Employee Compensation” column and Federal Government NonDefense row represents employee & employer payments for social insurance (as well as federal wage accruals less surplus, which occur if there are wages that workers have earned but not received, but this component is relatively small). As a share of the column total, these rates will tell you how much is paid in payroll taxes. Then, to estimate income taxes (as well as other taxes paid by households), calculate each household type’s payment to federal government as a share of the column total. Household payments to federal government represent gross interest, income tax, estate tax, gift tax, and non-taxes (e.g., fines and forfeitures). These taxes are direct taxes because they are paid directly to the government, in contrast to indirect business taxes, which are paid by households to government via industries. Then apply those rates to Employee Compensation’s payments to each household type as a share of the column total. So, for example, for HH LT 75-100K: EC payment to HH 75-100K = 10% of EC total. HH 75-100K payments to Federal Government = 10% of column total. 10% * 10% = 1% (to be multiplied by the direct EC effect, $1,000,000 in your example). Do this for all HH types and add the results, then add that subtotal to EC’s direct payments to Federal Government (calculated rate * $1,000,000), and then one has the Tax Impact of Employee Compensation. Here are some related forum discussions that might be helpful: http://implan.com/index.php?option=com_kunena&view=topic&catid=84&id=14832&Itemid=1679#14832 http://implan.com/index.php?option=com_kunena&view=topic&catid=84&id=13767&Itemid=1679#13777
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