Explaining Different Income Tax Values
Fully understanding the issues with leakages regarding study area size/geography, I'm looking to understand why for an activity with a modified (specified) firm level event (output, and specified employment and LI) why the Direct Effect state and federal employer-paid and employee-paid Soc Ins Tax values increase when this same activity is applied to a core county and also to the full MSA? Even if local UI rates varied by county so spreading the same employment and LI over the MSA might impact state Soc Ins as one partial reason, I still need to be able to understand and explain why, if all the workers work in the core county, how/why these Direct Effect Federal taxes would differ? Or should I be adjusting the tax output to hold these Soc Ins taxes constant - but then using what geography's model result data (county or MSA)? I chose Event modeling because I only wanted to change the relationship between output, employment, and LI for this firm, not the industry.
Thanks.
Marty
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IMPLAN SupportHi Marty, Great question and it took us a while to dig down to get the answer concrete. There is a cap on the level of income that gets taxed for Social Security. Any income above and beyond that amount is not taxed at all for SS – so different levels of high earners across places will cause some differences as well. This would cause a lower calculated “rate” because the tax rate is not being applied to all of the EC in that region. Thus in the circumstance you are working with the average Household Income for the county should be higher than for the MSA creating the appearance of higher tax rate at the MSA level. One way to resolve this would be do an MRIO analysis for the MSA. This way you would have the county's level of income affecting the collected taxes, but still see the linkages and trade movements of the MSA.0
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