Improving CBO's Methodology for Projecting Individual Income Tax Revenues
DIANE Publishing, Jun 1, 2011 - 39 pages
In preparing its annual report on the budget outlook, the Congressional Budget Office (CBO) projects revenues from the fed. individual income tax. This paper discusses two possible ways to use info. about tax collections to improve projections of tax receipts: Explicitly using the info. provided by recent tax collections to adjust the projections, and basing the projections on multiple years of info. from tax returns rather than relying on just the most recently available year. The results of this analysis suggests that combining the two approaches that is, using the info. from recent tax collections and relying on multiple years of tax return info. can modestly improve the near-term projection of individual income tax revenues. A print on demand report.
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actual liabilities adjusting the model’s alignment Alignment-Year Adjustment alignment-year error average tax rate capital gains realizations capture the essential Carry Forward 100 Carrying the Alignment-Year CBO’s analysis CBO’s individual income CBO’s model CBO’s more detailed CBO’s projections CBO’s revenue projections CBO’s Simplified Tax Congressional Budget Office detailed microsimulation method detailed tax return economywide totals Effects on Root Errors in CBO’s estimates of liabilities example features of CBO’s fiscal forecasting error Forward 100 Percent forward the alignment-year Income Tax Files income tax liabilities income tax model income tax revenues individual income tax inputs to capture macroeconomic forecast mean absolute error Mean Square Errors microsimulation model model’s projections model’s results multiple NIPAs number of inputs overestimate percentage change Percentage of Actual Projected Liabilities projection window reduced the RMSE results from CBO’s Root Mean Square Simplified Tax Model small number Statistics of Income Table B-1 Tax Data tax return data